overpaying - how best?

sciencegirl_3

Hi,
I am fairly new to this board and have found the advice to be very helpful and accessible. Just a question - everyone seems to be talking about overpaying their mortgage (even if it's only by a small amount each month) and I can well see the benefits of this BUT how do you do it? I have a 3 year deal at the mo which is due to end in May. I have had the oneaccount before and regularly overpayed and could see the obvious benefits but my current mortgage is not a current account one.
The old story - split up with partner, small child to love and support and had to remortgage to divide assets and grab cheapest monthly repayment deal. When I get my new mortgage am I able to ask to pay more than the repayment they demand - presuming I go down the route of a "traditional" repayment mortgage or is it better to go for a shorter term say 20 years but risk being overwhelmed by interest rate rises.

I currently am saving about £400 a month but this is also to cover stuff like holidays xmas car repairs etc. so is not as much as it sounds!
I would like to think that I could "lock away" even as little as £100 per month as a mortgage repayment without waiting for a small window of opporunity to pay into mortgage (thus incurring interest on money borrowed on mortgage throughout the year).

I have no other debts and in true moneysaving style have cashback credit card paid off in full monthly and Quidco membership!

Any advice much appreciated.

xx
Sciencegirl

Debt_Free_Chick

First off .... you will need to check the terms of your mortgage to see if overpayments are allowed and, if so, if there are any limits.

melg1973

Hi there, I overpay my mortgage - I setup a standing order to come out of my current account to go onto the mortgage account the day after I get paid (I do have both with Halifax so guess that makes it easier). This way it disappears before I spend it, I haven't altered the term of the mortgage and it means I can increase or decrease or even stop it if the worse comes to the worse. Its a repayment mortgage, no tie ins and very flexible which probably means I don't get the very best interest rate deal around but I prefer the flexibility. I have also been into the Halifax to pay off further lump sums twice over the counter but have just been told recently that you have to make an appt with the mortgage advisor to do that now as there were too many mistakes made by the counter staff! :eek:

Hope that may have been some help to you.

FairyElephant_2

Hiya,

We have our mortgage with Northern Rock as present - we fixed it early last year for 5 years, and are happy with the rate - also that it lets us make unlimited overpayments and then we can withdraw them again in future if we needed to!

I simply got the bank account details & ref no's to quote from Northern Rock and set up a Standing order for £50.00 per month via my internet banking. If we ever managed to have extra we could afford to pay into the mortgage, then I can just do a one-off internet banking payment.

The only 'problem' we have is that DH has crippling CSA payments to his ex, which means we can't afford to overpay much....but that's a whole other story!

I know that £50.00 per month is not all that much in scheme of things, but I feel happy that we are able to pay even a little extra....have thought about getting a 'mortgage pig' too, but we already have a 'holiday pig' to save to go away with his kids, and I'd hate to have to prioritise the pigs!!!!!

FE

Owen_Money_2

Looks like every bank works differently but all we done was wrote to the bank and asked if we could overpay each month by a set amount and voila! we received a letter in the next week or so confiming our new monthly payment which is adjusted accordingly each time there is an interest rate increase/decrease (more likely increase).

Good luck!!

Indout96

We are with Leeds BS (used to be Leeds & Holbeck) and we have been told that the way our mortgage is set up if we pay extra monthly we will not get the same benifit as if we pay a lump sum in December. They advised us to save the extra in another account gaining interest and then pay extra off in one lump.

andrewmoorcroft

Indout96 wrote:

We are with Leeds BS (used to be Leeds & Holbeck) and we have been told that the way our mortgage is set up if we pay extra monthly we will not get the same benifit as if we pay a lump sum in December. They advised us to save the extra in another account gaining interest and then pay extra off in one lump.

Any overpayment needs to be taken off the capital loan otherwise the loan that you pay interest on will not reduce until the yearly review. If an overpayment does not reduce the capital then you might aswell have saved your money in an interest paying account until december and then pay the money into your mortgage account. The only reason you would not ask for it to be taken off your loan is when there are early redemption charges. You can get around early redemption charges by making an overpayment in late december. You must insist that this is an overpayment and you do NOT want it knocked off your capital. On 31st dec / jan 1st they will have reviewed your mortgage and do the following calculation. New mortgage = last years mortgage + interest charged - payments made. The payments would normally equal the interest so the capital would remain unchanged. However because of the overpayment the mortgage would lower by the value of the overpayment made a few days earlier. This is a loop hole around redemption penalties. They make the capital repayment for you without asking so you dont pay a penalty.
If anyone doesn't understand this, pm me with your number (not overseas or mobile!) and i'll explain. The example is for interest only to simplify things but works the same for repayment mortgages.

sciencegirl_3

Thanks everyone for your replies. I think I understand about the yearly overpayment thing - I try to save money monthly to pay into my account when I dont get any penalty in Dec / Jan but when I change my mortgage in May is it possible to get whichever mortgage lender I choose to allow me to add on extra monthly payments (say £50-100) as part of the agreement or will I have to go for a flexible mortgage with higher rates?

I like the thought of "locking away" the bit extra in my mortgage rather than having it in a savings account where I can get at it!!

Science x