Overpaying a new mortgage

SouthUKMan

Hi. I am at the start of a new 30 year mortgage (Santander, two year discounted fixed rate at 2.25%). Because the mortgage term will take me to retirement at age 70(!) I am trying to work out how best to make my money stretch so that I can survive now and plan for an okay retirement. Like many people, thanks to divorce, etc, I am basically starting out again financially at the age of 40 with nothing apart from a £2,000 overdraft debt.

My questions will probably sound really basic but I need some help as I do struggle to understand finances and how interest rates affect debt and savings over time. Your input would be great

1) At the moment, I am lucky enough to have about £75 spare at the end of each month. Is it best to chip away at clearing my bank overdraft first or start to make overpayments on the mortgage? At the moment I pay about £13 a month in overdraft fees. I have had the overdraft for so long now that I've just accepted it (foolishly).

2) If it is best to use my spare monthly cash on overpaying the mortgage, should I try and overpay as much as possible now within the discounted fixed term rate or wait until the two years is up and make larger payments then from the savings I will have built up?

3) After 40 years of life I've learned that little goes to plan! So, for those who have overpaid their mortgage, has the sacrifice of having no spare cash to hand each month (because of the overpayments) been worth it from a happiness and peace of mind perspective?

I don't subscribe to Sky TV or pay for gym membership, etc so there is little I can cut back on to find additional money. Sorry for the long post but I want to do the right thing

Thanks

kingstreet

Repay the debt with the highest interest rates first.

Worry about the lower rated debt later.

TrickyDicky101

Without additional information based on the figures you have provided it looks like your effective annualised rate on your overdraft (based on £13 monthly fees/interest on balance of £2000) is 8.08%. This is much in excess of the rate you are suffering on the mortgage so you should aim to clear the overdraft first before you consider mortgage overpayments.

SouthUKMan

TrickyDicky101 wrote: »

Without additional information based on the figures you have provided it looks like your effective annualised rate on your overdraft (based on £13 monthly fees/interest on balance of £2000) is 8.08%. This is much in excess of the rate you are suffering on the mortgage so you should aim to clear the overdraft first before you consider mortgage overpayments.

Thanks for this. It might sound silly, but I never even thought about looking at the fixed monthly overdraft fee I pay (in addition to the interest) as a percentage. When you do this, it makes the figure seem very large. That's a great tip.

Thrugelmir

Tackle the overdraft first. Once the overdraft is dealt with. Build up some cash savings for a rainy day. Overpaying the mortgage whilst always a good idea needs to be dealt with at the appropriate time.

katejo

How did you get a 30 year mortgage which would not be paid off until 70? When i got my current mortgage (in 2005-6), I had to restrict it to 22 years because 25 would have taken me to 65 and the lender didn't allow that.

whacks

I am guessing its because he said he will retire at 70.

Yorkie1

Thrugelmir wrote: »

Tackle the overdraft first. Once the overdraft is dealt with. Build up some cash savings for a rainy day. Overpaying the mortgage whilst always a good idea needs to be dealt with at the appropriate time.

I'd have said this, too.

katejo

whacks wrote: »

I am guessing its because he said he will retire at 70.

As I remember I didn't have a choice. I was told that the lender had an age 65 upper limit for all borrowers

SouthUKMan

katejo wrote: »

How did you get a 30 year mortgage which would not be paid off until 70? When i got my current mortgage (in 2005-6), I had to restrict it to 22 years because 25 would have taken me to 65 and the lender didn't allow that.

To be honest, I haven't a clue. All I know is that in order to get the lowest monthly repayment rate I could (in other words a mortgage I could afford at this point in my life), the mortgage term had to be 30 years. It's terrifying to think I will have a mortgage until I'm 70 - but that is what the lender has agreed to. You can see why I am keen to explore ways to pay it off sooner if at all possible.

themull1

I got one up to 70, i'm on to my third husband, and fourth mortgage, if i had stuck with my first husband, my mortgage would nearly have been paid by now!! I'm overpaying £100 a month.