The best way to start the journey of mortgage freedom..

sitesafe

I admire the enthusiasm of this forum but I'm not sure if I'm posting in the right place as right now I'm still debating whether to take the journey to become mortgage free. Before I make that decision I would like to know whether there is any benefit of overpaying whilst in a fixed deal or not?


I have 2 years left on a 5 year fix where I can overpay by 10% (£3k early repayment charge if I want to come out of the fix). I was wondering whether there would be any point in overpaying during the fixed term as I would not see any reduction in the interest rate/monthly payment for 2 years. Would it not make more sense to set any potential overpayments aside until I come out of the fixed period and then use it to overpay as much as I wish when I move onto the SVR? This way I would still have access to the money should matters arise where I need it to be used elsewhere.


If someone can tell me the pros and cons of overpaying now as opposed to waiting until I go onto the SVR it'd be much appreciated.


Thank you..

Pepperoni

New to this (well, haven't started our journey yet!) but surely the benefit is that although your rates won't come down each month - the overpayments will hit your mortgage amount in total, so that will come down (i.e. you won't be paying it off for as many months / years).

sitesafe

Thanks first timer, yes, I share the objective but was just wondering how it works in fixed term as payments will remain the same for the next two years no matter how much I pay off and then at the end of fixed term I will have saved some interest and have a lower balance. Or if I just kept the money and waited until the end of the term and then paid it off whether that would make much difference...how much would I lose out by doing it that way I guess is what I'm thinking. I'm not good with numbers!!

sitesafe

I've had some advice on the other mortgage forum where I also posted this so will sit down and take it all in later ! thank you

Newme2014

I could be wrong but the way I understand it still comes off the total but it depends on the company how it affects the mortgage. I'm going to be with Halifax (when it finally gets sorted) and from what I've read, you can choose to reduce the term or reduce the payments but if you reduce the payments you have to go through another affordability whatsit I could be very confused though so hopefully someone with more knowledge pops up

Waffle_On

The fix isn't the payments, it's the interest rate. When you overpay, you usually have the choice to reduce your payments or reduce your term.


To decide if it's best to over pay or not follows the usual MSE guidelines:
Do you have any more expensive debts? (i.e. higher interest rate)
Can you get a better rate on savings?


If the answer to both of these is no then overpay, but stay within your deal's restrictions.

Suarez

Say for example you have £100,000 balance at 4%.

You overpay £100.

You then pay 4% on £99,900 instead therefore the part of you monthly payment that is interest will be slightly lower that it would have been.

The monthly payment would stay the same though but you are effectively making over payments every month after the actual over payment until your monthly amount gets recalculated (Normally at the end of your fixed period) as the interest is going to be calculated minus the extra £100 capital you have overpaid for every month until the fix end.