Overpayment Advice please

TomSRW

Hello,

Can you help me with pro & cons with some facts and figures?

I am possibly looking to overpay 40k on my mortgage. I can do this without penelty.

I currently owe 80k at rate of 4.78 unfixed

I have 25 years to run

I also owe 10k unsecured at same rate.

Many Thanks

Tom

TrickyDicky101

What's the source of the £40k? That will influence the answer.

What do you want to know - if it is a good idea, how to work out how much it saves, or ...?

TomSRW

TrickyDicky101 wrote: »

What's the source of the £40k? That will influence the answer.

40k will be tax free lump some I will get.

What do you want to know - if it is a good idea, how to work out how much it saves, or ...?

Yes is it a good idea and how much would I save in money and time to pay off mortgage

Thanks

TrickyDicky101

I will presume your current monthly payments are approximately £458. If you paid off £40k of your mortgage immediately but maintained your current monthly payments then you would reduce your term from 25 years to 9 years.

If you paid off the £40k and reduced your payments to maintain the current 25 year term, then your payments would reduce to £228 per month.

Whether it is a good idea or not really does depend on the source of the funds so that me/others can assess whether it is currently better invested elsewhere.

TomSRW

TrickyDicky101 wrote: »

Whether it is a good idea or not really does depend on the source of the funds so that me/others can assess whether it is currently better invested elsewhere.

Thanks for the info so far

The money will be part of my final salary on retirement.

TrickyDicky101

When will you receive this £40k then? Are you to imminently retire? Is it from a pension commutation (ie lump sum on retirement) or literally from your final year's salary? What kind of pension do you have (ie is it Final Salary or Defined Contribution)?

TomSRW

TrickyDicky101 wrote: »

I will presume your current monthly payments are approximately £458. If you paid off £40k of your mortgage immediately but maintained your current monthly payments then you would reduce your term from 25 years to 9 years.

If you paid off the £40k and reduced your payments to maintain the current 25 year term, then your payments would reduce to £228 per month.

Whether it is a good idea or not really does depend on the source of the funds so that me/others can assess whether it is currently better invested elsewhere.

Thanks Dicky for the answers so far.

The sourse of funds will be part of my final salary

TomSRW

TrickyDicky101 wrote: »

When will you receive this £40k then? Are you to imminently retire? Is it from a pension commutation (ie lump sum on retirement) or literally from your final year's salary? What kind of pension do you have (ie is it Final Salary or Defined Contribution)?

I will recieve this money within the next year, it is part commutation and lump sum.

I will be seeking other employment though I will recieve a monthly pension of about £800

TrickyDicky101

Well, if you have no other need for the money, then 4.78% is a difficult rate to beat on any other investment. It would reduces your term very nicely.

The most flexible option could be to pay the £40k off of your mortgage but reduce the monthly payment you make (ie so you keep your term the same).

You can then make an overpayment each month to bring your total monthly payment to your bank up to the original level (ie £450ish) so that in effect your term is reduced to 9 years.

It is more flexible because should you ever have need to reduce your payment in any month (eg down to £228) because of other commitments you can do so easily (because that's your normal monthly payment - no need to seek lender's permission to pay a reduced amount).

This does need personal discipline though to make sure you do continue to make overpayments each month up to the original payment level of £458.

TomSRW

TrickyDicky101 wrote: »

Well, if you have no other need for the money, then 4.78% is a difficult rate to beat on any other investment. It would reduces your term very nicely.

The most flexible option could be to pay the £40k off of your mortgage but reduce the monthly payment you make (ie so you keep your term the same).

You can then make an overpayment each month to bring your total monthly payment to your bank up to the original level (ie £450ish) so that in effect your term is reduced to 9 years.

It is more flexible because should you ever have need to reduce your payment in any month (eg down to £228) because of other commitments you can do so easily (because that's your normal monthly payment - no need to seek lender's permission to pay a reduced amount).

This does need personal discipline though to make sure you do continue to make overpayments each month up to the original payment level of £458.

Thanks for your time Dicky,

the flexibility of that sounds appealing

Regards

Tom

Caroline73_2

It maybe worth looking around at mortgages. you could get a better rate as your LTV will change.