What are the benefits of overpaying whilst in a fix rate deal?

sitesafe

I have posted this in mortgage free forum also as I wasn't sure where it would be most apt. 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..

Southend1

It makes sense to overpay if the mortgage interest rate is higher than you would get on your savings account. You should of course keep an adequate emergency fund. Overpaying will bring down the outstanding balance and reduce the interest you pay therefore saving you money and paying off the mortgage quicker.

enjoyyourshoes

Endorse what Southend says, also:-

as you are overpaying Capital you will benefit from saving compound interest.

Get quote from mortgage co or use the tool on HSBC website as a guide

Negative, you cant get the money out from mortgage you overpaid (some mortgage deals allow this, so just check) and as Southend says need to have emergency fund you can access.

If you mortgage interest is higher than best interest (net if taxpayer and not using ISA) then paying off mortgage is a great way to use your money.

I have similar situation to you, have paid the 10% overpayment and saving additional monies in high interest rate accounts and have calculated that I can pay off fixed rate ahead of term, incur the redemption fee, and still be better off. (if you use Excel you can calculate the breakeven point factoring in the redemption penalty which changes every day!) (get mortgage co to explain how your works and is calculated)

Good luck

SG27

Just overpay now. All overpayments will reduce the amount of interest you pay straight away. I'm on a 5 year fix and I overpay by around £150 per month. As above it only makes sense to hold back overpayments if you can achieve a higher net rate on your savings than your mortgage rate.

sitesafe

Thanks for advice everyone


Am I right in thinking that if I overpay a lump sum of 10% in my fixed rate, that the amount I pay per month will remain the same, but the two components that make up that amount will change (namely more capital and less interest). I guess I'm just confused as I won't actually 'see' the change whilst in the fixed rate as payments will remain the same? Is this correct


Thanks...

R_P_W

sitesafe wrote: »

Thanks for advice everyone


Am I right in thinking that if I overpay a lump sum of 10% in my fixed rate, that the amount I pay per month will remain the same, but the two components that make up that amount will change (namely more capital and less interest). I guess I'm just confused as I won't actually 'see' the change whilst in the fixed rate as payments will remain the same? Is this correct


Thanks...

Well what would be the point in overpaying one month for the payment to drop the next? You are overpaying the capital quicker, so you save interest overall. The payment stays the same