Overpayments in 1st year?

karillian22

After having awful problems getting a mortgage agreed last year I finally got one on the 3rd attempt. It's a fixed rate for 2 years, it's not a fantastic rate or mortgage but I was running out of options and it was a case of taking it or losing my home due to divorce.

Anyway, I have recently finished paying a monthly insurance premium it's only £30pm but I thought rather than getting used to the money and it getting wasted or swallowed up in general household bills I would put it towards an overpayment of my mortgage.

I have looked at the mortgage calculator on here and what confuses me is that in the first year if I make over payments it doesn't seem to make any difference to the outstanding balance at all. In the second year it will take off a little but it's not until about years 5 and 6 that it makes a real difference. So should I wait till June when the mortgage is 1 year old and start paying off the extra?

I know it's not a lot I really can't afford any more at the moment but I am thinking that something is better than nothing and if interest rates are due to go up then I can always cancel the over payments but I will be used to paying the extra anyway. How do I know if it's better to pay it off monthly or put it in an ISA or something and pay off a lump sum at the end of each year? and at what point in the year is it most beneficial to pay a lump sum?

I am pretty naff at figures but I suppose if the ISA isn't paying any more than the mortgage interest then it's better to pay it off the mortgage each month? (I apologise to any mathmeticians out there or money experts for my naievity in all this!)

Think I have just answered the above bit found a section on MSE where I can calculate the amount of interest I pay on my mortgage and the rate I would have to get on savings, and at the moment savings don't come up to what I would need to make it worth while, also the higher rate interest accounts seem to be for amounts over 10K which I don't have! Sorry still finding my way round all the info on here!!!!!

I have looked on here at other peoples posts but am getting bamboozled by all the huge figures!

The mortgage is for £79000 I pay £574 per month, it's repayment over 15 years. The paperwork says I can pay a max of 10% of the outstanding mortgage so I assume £7900. (I wish!).
I know the above sums will probably seem tiny to some people on here with huge mortgages and huge monthly payments but I don't earn a lot, I just want to try and get rid of what's to me a huge debt in my life.

Not sure if this should go in the general mortgage section or this section??? may try both so sorry if you have already read this!

Thank you in advance for any help you can give!!!!

getmore4less

Every overpayment helps a lot more than it may seem from the calculators.

Look at monthly saver accounts these pay the best rates.

It is a straight comparison on mortgage rate against net saving rate.

£79k with 15 years paying £574pm is a rate of 3.737%

If 20% taxpayer you need a rate of 4.67%

First direct have a monthly saver of 8% but that needs current accounts with them.

might be others month savers but not many.

I think just overpaying might bethe best/easy option unless you alreday have A FD account.

£30pm reduces the term of your loan by nearly a year.

rfowler

I would over pay on the mortage, I over pay on my mortgage £50 a month and that has cut down my term by nearly 2 years!!!!!

So whatever I cash I have spare (after saving/emeergency fund) I over pay on the mortgage.

LittleMissAspie

Start overpaying it now, set up that direct debit today! It is more worthwhile to pay extra in your first year than in any other year as the effect is cumulative. That's why it doesn't make much difference at first so the earlier you start the more you will save over time.

I have just allocated an extra £30 to our repayment today, as I had budgeted too much for another bill. It sounds small but it is worth it!

If it reduces your term by one year as someone says, that's over £6,800 saved - that's a nearly new car, or a holiday of a lifetime!

karillian22

Done it!!:D


I contacted the bank and have set up a standing order for the £30 pm starting from today, figure if I leave it any longer that £30 will get lost in the usual household bills etc.

Even that small amount looking at it now on the mortgage calculator will reduce my mortgage by a year so long as I can keep paying the extra!

Thanks for all the advice and encouragement, I am sure to a lot on here £30 is nothing when they are talking in the hundreds about over payments but I am glad I have done it now!

getmore4less

Here is the table for how much it costs extra to knock each year off

1. £30
2. £36 £76
3. £41 £137
4. £49 £186
5. £59 £245

delmar39

The longer you leave it the longer it will take to pay off so start OPing asap. OPing doesn't impact straight away and the danger is you do nothing because of this. It all makes a difference and in a years time you'll be pleased you started now.