Why do you overpay?

suse*

I have been made redundant that many times now there is never a job for life in my industry. That combined with constantanly falling house prices, meant I got stuck with a northen rock mortgage for ages, on a stupid higer rate and couldn't escape from. A lot of people are still trapped this way and stuck on 6.75% as they can't change their deal, but as I had overpaid here and there from the start I have at least managed to remortage now.

You will never know if your bank will go bust, will you get sick, will you loose your jobs, the house will get flooded and you can't sell / remortage due to negative equity. If you want kids they are pretty darn expensive too from what I hear, they can appear just when you least expect it too.

I over pay so that the next time life tries to trip me up I'll have a bit of a buffer so I can reduce the payments for a bit So even if I then get stuck on a higer rate and can't remortgage again, that might be enough to get me through the next crisis.

I also want to get it paid off as soon as I can as I know I will not be healthy enough to work full time until I am 70. So the sooner I pay the mortgage off I can then focus on early retirment more. I do have a pension already and still do plan holidays etc, but again I have finally had my proper lightbulb moment and want to make every penny count. So by having short and long term spending goals like this I hope I will be able to pay off the house in the next 10ish years, and maybe retire 10 years after that.

Also the interest rates will go up eventually so the more I can pay off now, or at least have set aside in the offset account, the less those rises should cost me than if I'd paid nothing extra.

suse*

Oh also even if you don't have an offset mortgage you could have a "virtual" one and put the extra cash in a higher interest isa, or investment and still count that as your overpayments. You just have to be super strict not to touch that money so it grows over time, then depending what happens to interest rates you can decide do you just pay the mortgage from that isa account or whatever once you're mortgage nuteral, or just pay the whole thing off and start saving for retirement etc.

Thrugelmir

I am loving these answers as it's a dilemma I'm struggling with currently. We have a lump sum coming soon and it was always ear marked to pay off a considerable amount of the mortgage. However we were recently advised by an independent financial advisor not to pay off any of the mortgage but to invest the whole lump sum. Cue many many debates/discussions between OH and I as what to do.

Investing in what though? There's no return without risk.

What is your IFA going to make from the investment you make through them? That's already ground that you'll need to make up.

CC-Warrior

sampa99978 wrote: »

Hi all, I'm hoping to get some points of view from you lovely MFWers. I'm in the process of buying my first house and (all being well) am interested in making overpayments on my mortgage once we're all settled in. The mortgage will allow for overpayments up to 10% each year of the overall amount.

I brought up the topic to my sister and her partner last night as they've been paying a mortgage for a year now. They pretty much scoffed at the idea, saying that they didn't think it was worth limiting their lifestyle now for the sake of knocking a few years off later down the line. I should point out that they have more restrictions on overpayments than mine would, but the general idea didn't seem to appeal to them.

So my question is, what are your reasons for overpaying? Do you feel like you are having a less comfortable lifestyle because of this, or that's it's still worth it anyway?

I still feel like it's the best thing for us, providing that we are still setting aside a budget for emergency funds and holidays etc, but I was a bit surprised to hear the other side of the argument.

My problem with this is that I want to enjoy life now - to the max. I don't want to not have the money for nice things, holidays, etc. I don't want to lose touch with friends from not going out etc. It's all very well paying it off a few years early but then I'll still be in my sixties and won't be able to do the same things that money allows me to do currently. Life is too short for it to be a mortgage.

Lois_E

CC-Warrior wrote: »

My problem with this is that I want to enjoy life now - to the max. I don't want to not have the money for nice things, holidays, etc. I don't want to lose touch with friends from not going out etc. It's all very well paying it off a few years early but then I'll still be in my sixties and won't be able to do the same things that money allows me to do currently. Life is too short for it to be a mortgage.

This is MFW, not DFW. We don't have to cut expenditure to the bone, unless we choose to. Most of us choose to spend money on things that we don't need to, but that give us pleasure - whether that's holidays, or going out with friends, or upsizing to a bigger house, or keeping a horse, or having children, or whatever.

Still, we class ourselves as MFWs because we think there are ways we can cut expenditure without detriment to our quality of life, and that when we make those cuts, we can work towards the freedom of not having to pay for housing, and the security of owning our homes outright. Some of us do this by overpaying the mortgage directly, and others have different strategies - offset mortgages, virtual offsets by saving in a different account, paying extra into S&S ISAs or other investments, taking care of our pension plans etc. We do this because, to quote the example using the default figures on Martin's mortgage overpayment calculator, £50 a month now isn't a big deal, and over £9k in the future certainly is a big deal.

Of course, some people tragically die young, and nobody knows what is around the corner, but still, at 65 most people are still in the prime of life, healthy and active, with decades of life ahead of them. Being careful with money now is worth it not to have an old age of poverty and worry about money, or not being able to retire until well over 70, or retiring but having no money to do anything with the time that becomes available.

Busymumofthreeplusdog

Thrugelmir wrote: »

Investing in what though? There's no return without risk.

What is your IFA going to make from the investment you make through them? That's already ground that you'll need to make up.

Yeah Thrugelmir those are all points we are considering. He seems to think he can get us a 5% return, and the money would still be available instantly if we needed it. OH and I are quite risk averse so would not be taking any great risks. Nothing's decided yet.

edinburgher

I want to enjoy life now - to the max

I've found it's perfectly possible to enjoy life without huge amounts of money (although a little bit never hurts!)

littlegreenpeas

I overpay to
reduce the stress in my life if hubby or I were to lose our jobs.
Pay less interest
Be able to send our children to private school if we decide to.
Be in control of our finances if rates increase.
Get the best rates of mortgage if we move.
Buy a second house as a pension if we want to

It is all personal preference but lots of people just don't understand why we are in this club.
Lgp

lexington013

As some of the other posters have stated"security"
I'm a natural born worrier.....my job is uncertain. I have managed to accrue 76k of savings to run alongside some OP I have made to the mortgage, but am stuck in a 10 year fix (4 years to go), once that's up I will remortgage and use a chunk of the savings, hopefully 90k by then to get the mortgage nearly gone......fingers crossed.

goodmorningsunshine

Busymumofthreeplusdog wrote: »

I am loving these answers as it's a dilemma I'm struggling with currently. We have a lump sum coming soon and it was always ear marked to pay off a considerable amount of the mortgage. However we were recently advised by an independent financial advisor not to pay off any of the mortgage but to invest the whole lump sum. Cue many many debates/discussions between OH and I as what to do.

I think gradually we are coming around to the idea of half going to mortgage and half to investment and see what the next year brings. Our mortgage could then be significantly reduced in either years or current monthly payment.

Not a done deal yet though, discussion continues........

Has your mortgage got a very low interst rate??

and it would not be of any benefit to you to pay off some of your mortgage?

Think long and hard, the financial adviser (looking after his own interest -IMHO) or what you feel is best for you both.

Not telling you what to do, but so glad to see your getting advice from others before committing to anything.