Mortgage Overpayment Strategy

seanfos

I am looking for some advice on the best strategy for overpaying my Britannia mortgage. Overpayments are allowed as follows:

You can overpay by up to 10% of the previous year end balance of your mortgage each year, with no early repayment charges, depending on the terms of your offer of advance.

Overpayments of up to £499.99 will be applied to your mortgage account on the day of receipt. This will reduce your balance and we will recalculate your interest in line with your account terms and conditions, your monthly repayments will remain the same. If you overpay by more than £500 your monthly repayment will be recalculated, however you will also have the option to have your mortgage term recalculated.

For the past 8 months I have been overpaying by £150 each month, but I am wondering if this is the best way now that I am in a position to pay more. Would I be best:

1. Maximising each monthly payment up to the £499.99 limit above
2. Saving money in a separate account at the highest rate possible and then once per year pay the maximum 10% as a single lump

My aim is to pay the mortgage as fast as possible and reduce the amount of interest I will pay. Which option would suit me best or is there another, better way that I have not considered?

Thanks

Sean

ViolaLass

What is the interest rate on your mortgage?

getmore4less

How much can you afford each month and what is the 10% cuurently at.

The general rule

Borrow as little as possible
Borrow for the shortest time possible
Borrow at te lowest rate possible.

So paying as much as you can as soon as you have the money is the best subject to various modifiers.

eg. (but not limited to the following)
If the savings rate is higher save.
If there are penalties check that saving would not be better.

In your case if you can exceed the 10% then you need to optimize,
if not it makes little difference as any reduction in payment just means more in the overpayment pot.

Hurdler

I am on a tracker that is below 1% interest at the moment (0.97% to be exact) and so at the moment I pay 3x my amount + interest for the month to trigger a recalculation (anything obviously over that amount gets recalculated which means less to pay each month I can do that).

I do have savings in an ISA and emergency fund that earn precious little in terms of interest but they are my cash buffers for emergency as I am self-employed so that has to be a fundamental part of my strategy.

It feels as though I am chipping away at it slowly but surely... while still haing some reserves in hand.

seanfos

Thank you for the replies so far...

Sean

cb4fwh

Sean,

Don't know how Microsoft Excel literate you are, but it may help dropping your figures into this spreadsheet to give you a idea of how your mortgage overpayments may affect your balance versus how much interest you would achieve if you left the money in your bank etc.

http://forums.moneysavingexpert.com/...html?t=1157173

ViolaLass

It looks like the only difference is that under £500, they will automatically reduce your term and over £500, they will automatically reduce your payments but you can opt to have your term reduced. Reduced term will save money, reduced repayments just, well, reduces your repayments but does gain you flexibility if you ever want/need to pay less.

Can you get your overpayments back? (I can on my mortgage)