Effect of lump sum overpayment on my 5yr fixed morgage.

carl0s

Hi. I know I should ask First Direct themselves, and I will be doing, but it's the bank holiday.

I have a £112,500 mortgage on my £150,000 house. I am paying £585/month on a 5yr fixed deal. I can't remember the numbers, but it's a reasonably good deal I think (same package now costs £625/month with them, so I must've got it at the right time). My first mortgage payment was in March, so I'm only 3 payments into the term.

I have a fun car that I'm finding I never drive any more. I am considering selling it, which would get me about £12,000. It cost me about £20,000 to build, so part of me doesn't want to get rid, but then it is getting next to no use.

I am wondering what exactly happens if I make a one-off overpayment of £12,000 on the mortgage, but elect to continue paying £585/month. How exactly would this benefit me? Where would the £12,000 go and how would it make a difference?

Let's assume for now that I am allowed to make such an overpayment without penalty.

I'm not sure I can get my head around the benefits. On the other hand, it seems like a very cheap £12,000. Perhaps I would be making a mistake giving up that £12,000/asset, for the sake of the mortgage.

I really would like to get this debt over and done with as soon as possible though, and ultimately would like to upgrade to a nicer house, and retain this house to let out. My pension plan is essentially property letting, since I am self-employed and do not pay into a pension.

ACG

Making a £12k payment 3 months into a 5 year fix will probably result in a hefty early repayment charge.

However ignoring that, there are 2 options - you can either carry on as normal paying the same amount. This will reduce the term of your mortgage which in turn will save you some money on interest etc.

Alternatively they would recalculate your repayments but keep the term the same.

carl0s

ACG wrote: »

Making a £12k payment 3 months into a 5 year fix will probably result in a hefty early repayment charge.

However ignoring that, there are 2 options - you can either carry on as normal paying the same amount. This will reduce the term of your mortgage which in turn will save you some money on interest etc.

Alternatively they would recalculate your repayments but keep the term the same.

There's definitely no charge for either lump sum or regular over payments. Info at the bottom here: http://mortgages.firstdirect.com/mortgage-rates/product/5-year-fixed-repayment--standard~45

ACG

Thats pretty good then.
Ive just done some very basic figures - presuming its originally over a 25 year term it would probably knock off about 4 years from the term of the mortgage or £50 a month.

carl0s

ACG wrote: »

Thats pretty good then.
Ive just done some very basic figures - presuming its originally over a 25 year term it would probably knock off about 4 years from the term of the mortgage or £50 a month.

Cool. Thanks!

and if I throw the odd grand or two at it, as and when I feel flush, I could get through it quite quickly then.

It would also be helpful if, in 5yrs time when my fixed deal ends, the SVR & BoE is sky high or something.

ACG

How would interest rates being sky high in 5 years help you?

Boozer

ACG wrote: »

How would interest rates being sky high in 5 years help you?

I had to read it again to understand what they meant, i am sure he means that paying more off now will be helpful in the future as he would not have such a big mortgage to pay if rates are high at that time.

ACG

Ah gotcha...IF they are higher then it wold be helpful to have brought the balance down beforehand?

Its late on...im tired - thats my excuse

carl0s

ACG wrote: »

Ah gotcha...IF they are higher then it wold be helpful to have brought the balance down beforehand?

Its late on...im tired - thats my excuse

Yep that's what I mean. Pay what I can when I can. 15% interest rates could occur.

bigadaj

carl0s wrote: »

Yep that's what I mean. Pay what I can when I can. 15% interest rates could occur.

I'm not sure we want sensible comments like that on here. I'd be happier with due to unforeseen circumstances and due to no fault of my own my interest rate has increased by half a per cent and I can't pay my mortgage anymore.

What next, are you not going to claim your mortgage was mis sold?

dimbo61

For most people a mortgage is there largest debt and the biggest expence each month.
You pay interest each month and over the normal mortgage length of 25 years you end up paying £ thousands of pounds in interest to your lender.
For example borrow £120K over 25 years at 4% and you pay back £200K so the quicker you clear the mortgage the less interest you pay.
If you dont use the car sell it now and pay that lump sum off the mortgage SIMPLES