Overpaying mortgage - peoples experiences

bownyboy

For me I didn't overpay for 18 months, as the house we bought needing gutting, so all spare cash went into the house.

Fast forward to Jan 2011 and I started paying £500 a month by standing order every month into my mortgage account (max allowed). For 2 years I then saved another £500 into an ISA and then payed it into the mortgage account each January (allowed extra 10% each Jan).

This has served me well and cut a huge amount off the mortgage. However as I have educated myself more and read many blogs and threads, I have now opened a stocks & shares ISA and pushing my money into this instead. Aim is to become mortgage neutral, but instead of it all being tied up in my house and not accessible, I will have a safety net of tax free investments.

Thats my plan. But I can totally understand the psychology of wanting to get rid of the mortgage.

For me I need to start thinking about investing for later life (my work doesn't provide a pension).

Stuey1980

I got a 5 year fixed rate for 25 years in Jan 07. Up until now I have not really been able to overpay so much. I guess this changed last year when my bonus changed to a quarterly set amount. I put a good amount of that into overpayments every quarter, and the same amount into my company pension also. This month the fixed rate ends and my interest rate drops from 6% to 2.5% and so I intend to bridge the gap and maintain what I was paying previously. I will keep up the overpayments each month to match what I was paying and I will aim to share the quarterly between overpayments and pensions, with a bit of disposable cash in my back pocket. Its scary how quickly one gets used to that so I aim to use all of it in the mortgage and pension plus maybe SS ISA. I may check out SS ISA's and do a 3 way split, however the pension makes a very efficient way of taking my bonus which would be lost if I put it into an ISA. The projected mortgage on the calculator looks very good ending the mortgage at least 10 years early, probably a lot more. I dont really know since there is not a calculator I have found to take all of that into account.

Calleja

I'm really appreciating everyones input - thank you! And the topic of investing rather than overpaying has made me realise there are other options - I will certainly look into this.


Regarding the overpaying - I guess what scares me is that a lot of people are commenting that overpaying was made possible for them (or easier) by a reduction in interest rates. With rates likely to increase, I am unlikely to be in this situation in the foreseeable future, and will most likely be in the opposite situation where my monthly payment will increase. Hence why I am keen to overpay now to try and buffer the effect of this a much as possible.


In fact, it is the interest rates increasing that scares me the most - if rates were to increase dramatically, I would probably struggle. But then I tell myself that my income is probably better than a lot of peoples, with the ability to work extra and take home more, so if I struggle, there will be people far worse off than me.....

puk999

Calleja wrote: »

I'm really appreciating everyones input - thank you! And the topic of investing rather than overpaying has made me realise there are other options - I will certainly look into this.

Perhaps do a bit of both. IMHO the best way to learn about investing is to do it; open a S&S ISA, select some funds and put a bit of money into those funds each month. Do this at the same time as overpaying the mortgage. See how the funds go, switch to other funds if you want to, read/ask at the Savings & Investments part of this forum.

BTW, thanks for asking the question as it's made me think a bit more about my approach.

TBagpuss

One of the reasons I started overpaying was that I was on a fix and was concerned that interest rates might go up during the period of the fix, and that I would suddenly be hit with a big increase at the end of the fixed period. My thinking was that the overpayments would soften the impact of any change and would allow me to gradually adjust, rather than having to manage a big jump in one go.

In the event, rates went down, which was a lucky break.

I'm now just about to move and although I am almost doubling the amount I'm borrowing, my monthly payments need not change, as the amount I am currently paying (including overpayments) is about £10 a month lower than my new mortgage payment will be. It also meant that I have about £16K more equity than I would have had if I'd not overpaid, which means I'll be below 80% LTV on the new property, which mean t I was eligable for a better deal on the new mortgage than I would otherwise have been.

I have tended to increase payments into my pension each time I up the overpayments to I'm hedging my bets.

My mortgage gives me the option to draw back down the overpayments (in fact I have just done this, to allow me to 'port' the maximum proportion over to the new property) and to take payment holidays for as long as the overpayments hold out, both of which were attractive to me, as it allows the option to borrow the money back at mortgage rates and to pay back on my own schedule rather than having to take out other borrowings if I were to need to.

katejo

I did overpayments on my first mortgage once the first few years were over. I then inherited a small amount which allowed me to pay a large chunk off and eventually clear it. When I bought my current house interest rates were still 6% so I invested all the profit from the flat to keep the new mortgage as small as possible. In effect I did overpayments from the start as I could only get a mortgage for 22 years not 25 which would have lasted until I was over 65. When the interest rates dropped right down, I started to do overpayments and have now paid off around a third of the mortgage capital in 8 years.
In 2012 I stopped the overpayments for a bit and used the money on home improvements, particularly a kitchen and new windows. I am about to go back to overpayments.
I am a low risk person and definitely could not invest with risk while I had a mortgage to pay off!

Hughesy84

I have had my mortgage 2 years and havent overpaid anything...I wanted to see how we got on paying the initial payments 1st.

However when I fix it on a new rate, which will be quite abit cheaper as we will be down to 75%, il be looking to pay the new rate + the difference of the saving.... which looking at early indications, should be around 25% overpayment each month

lee111s

I've not overpaid yet as I took out a CC to do some work that needed to be done on my new house (bathroom, garden, kitchen) etc. CC should be paid off by August time (£600 per month) of which will then be going onto overpayments. I'll get my mortgage down to about £99k by the time I come to remortgage next March. This should give me enough equity to get a 75% LTV meaning I can take 10 years off the term for a £75 increase in the monthly payment. I'll then overpay by £400 and save £300 a month until I have a few months worth of wages saved and then plough as much as I can into the mortgage. I aim to be mortgage free by 45 (plan on buying a long term home in the next 3 years)!

tulips

I'm overpaying so I can get into the next LTV band when my current deal ends in 2 and a bit years (assuming 0% hpi).
If I was better than 60% LTV I'm not sure I'd bother / I'd look at alternate investments whilst rates are so low.

dimbo61

Warning Stocks and Shares can go down as well as up!
I do not want to use my Pension lump sum ( You only get 25% ) to pay off the mortgage.
A pension is just that A PENSION, money you will need for old age!
Unless you can save huge amounts each month many private pensions give you little to live on in Retirement.
The biggest expense most people have is the mortgage and overpaying is a great way to clear it quickly.
I have a good NHS pension and save into a private pension.
Being Mortgage free OR having huge amounts of equity in your home can help with other investments!