Overpay pre or post remortgage?

moneysavinggirl40

Already @ 60%LTV, so overpaying to let us select products at better interest rate is not the issue. No early redemption involved as deal is coming to an end. Is it best to overpay (lump sum) the current lender deal whose interest rate is 2.65% or is it best to put a lump sum after accepting the new deal with same lender whose interest rate is 1.79%? No valuation fee or conveyancing needed, when remortgaging, just £995fee with £100 cashback.

Beckyy

How long til you remortgage?

Personally, I would overpay now, providing you won't encounter any penalties.

You're paying higher interest now, and it will mean it doesn't come off the limited amount you'll be able to OP on your new mortgage (assuming it's a fix with OP limits).

The only time I wouldn't OP is if you have a savings account with a higher interest rate than that of your mortgage.

moneysavinggirl40

Remortgage date is 31March2014. That's right there are not any penalties for overpaying as I am still within 10%. New mortgage has 10% OP per year, if I OP with new mortgage I will still be within 10%. Issue is should I overpay with my current higher interest mortgage or wait till I have my lower interest mortgage? New mortgage is a 2 year tracker.

edinburgher

It makes no real difference financially. Yes, the interest is higher now, but only for another couple of months.

So basically by overpaying now, you're saving the difference between the old and new interest rates on your current mortgage debt for a couple of months.

I doubt it adds up to much

Then again, if you're set on paying down the debt, sooner is usually better.

moneysavinggirl40

Becky your point is valid that if I overpay now I will have my full 10% at the start of my remortgage to take advantage of later on in the year.

Edinburgher: 2 months to go at 2.65% then on 1.79%, I thought that if I overpay when i have lower rate interest, more overpayment goes towards capital than interest?

edinburgher

Yes, but the difference will be negligible.

Using the MSE Overpayment calculator with an imaginary mortgage of £100k over 10 years and an OP of £1k, you would save £110 in interest by making the OP with the higher rate mortgage still in place.

So unless you have a mahoosive mortgage or an equally mahoosive OP to make, I can't see you saving that much.

Play with the calculator, it's quite user friendly.

moneysavinggirl40

tried with imaginary mortgage of £100K over 10 years and an OP of 10K would save £4000 by making OP with lower interest rate in place compared to the higher interest rate, am i using this too correctly?

ViolaLass

I'm not sure you are. If you overpay later, all you gain is that you'll pay a couple of months interest on a larger amount (before overpaying). If there are no penalties, I can't see that overpaying earlier wouldn't be the cheaper option (if not by much).

edinburgher

You can't be I'm afraid, as an overpayment with a higher mortgage rate will save you money (not the other way around).

To compare two scenarios like these (OP at 2.65% now, or 1.79% in 2 months), you need to make sure all the variables are entered correctly.

I'm not sure what else we can add on the topic - OPing at a higher rate saves more money!

Mara_uk7

If you overpay now, does the new mortgage come with a whole new 10% overpayment allowance ? So in theory you could overpay another 10% later in the year ?

moneysavinggirl40

Mara_uk7 wrote: »

If you overpay now, does the new mortgage come with a whole new 10% overpayment allowance ? So in theory you could overpay another 10% later in the year ?

yes thats right, 10% of the borrowed amount now, if i want before the end of MARCH this current mortgage, and 10% in April (the following month if i wanted) once the new mortgage starts. 10% is per year so come next april 2015 i will be allowed another 10% overpayment on the amount borrowed.