Overpay pre or post remortgage?

moneysavinggirl40

edinburgher wrote: »

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!

So when you have a tracker mortgage at 2.65%initial rate for 2 years you are paying interest at that higher level, on the amount borrowed, if you are to op at that level then more comes off your capital? Then to go with a tracker mortgage at 1.79% initial rate, the interest on the borrowed amount is less so the op is less? i am confused!!

moneysavinggirl40

so should I look for a mortgage with a higher interest rate then not a low one. As a higher interest rate means you pay off more off your repayment mortgage and more goes towards the capital

edinburgher

I think you're misunderstanding this slightly

When saving: always seek the highest interest rate
When borrowing: always seek the lowest interest rate

You will always save money by having a lower interest rate, because you pay the bank for the privilege of borrowing the money. Just because you will save more (proportionally) by overpaying with a higher mortgage rate does not mean you want a higher mortgage rate to begin with! You're saving more because you're paying more to begin with, it's not a good thing.

Improve your LTV, get the lowest mortgage rate you can (considering fees etc.) and overpay because you want shot of the debt to have the money for other things.

You can overthink these things

moneysavinggirl40

edinburgher wrote: »

I think you're misunderstanding this slightly

When saving: always seek the highest interest rate
When borrowing: always seek the lowest interest rate

You will always save money by having a lower interest rate, because you pay the bank for the privilege of borrowing the money. Just because you will save more (proportionally) by overpaying with a higher mortgage rate does not mean you want a higher mortgage rate to begin with! You're saving more because you're paying more to begin with, it's not a good thing.

Improve your LTV, get the lowest mortgage rate you can (considering fees etc.) and overpay because you want shot of the debt to have the money for other things.

You can overthink these things

:Dyes u're right, and thanks for making things clearer, i think

moneysavinggirl40

moneysavinggirl40 wrote: »

:Dyes u're right, and thanks for making things clearer, i think

makes sense now why the 2 months is negligble as it would have been better to overpay towards the beginning of a deal so the amount that has interest calculated on by the provider is less.:o

edinburgher

Yes, if you have a higher interest rate, you'll get a better benefit from overpaying early (well, assuming daily interest).

Case in point - my £500 OP on a 4.99% mortgage a few months into the mortgage saved me more money than another £500 OP a year later.

moneysavinggirl40

I misunderstood because I thought the lower interest rate meant that rather than money going towards heavy interest rate it will be better spent taking it off capital.

ViolaLass

But if you're overpaying, ALL of that amount will come off the capital (because the monthly payment, the normal one, will have already covered the interest for that month). For this reason, the interest rate is not the relevant factor - you just want to overpay as soon as possible (subject to penalties and being able to afford it etc).

moneysavinggirl40

ViolaLass wrote: »

But if you're overpaying, ALL of that amount will come off the capital (because the monthly payment, the normal one, will have already covered the interest for that month). For this reason, the interest rate is not the relevant factor - you just want to overpay as soon as possible (subject to penalties and being able to afford it etc).

great, thanks for the confirmation peeps. Seems like if i can put lump sum down then the best time to do it is, as soon as possible. interest rates have no bearing.:cool: