Any point in making overpayments on mortgage during fixed rate ..

sitesafe

I have nearly two years left on fixed rate deal of mortgage (with £3k ERC) and then I think I will have 15 years left.


Thinking of selling the house after two years. What, if any, would be the benefit of making the two 10% overpayments per year that I am allowed to, if I intend to sell up in 2 years?


Thank you

nidO

You'll pay less interest for the next 2 years.

Whether this is beneficial depends on whether the money could be earning you more with you keeping it, than it'll save you by knocking off interest from your mortgage.

Thrugelmir

Do have any other debts? Pay these off before the mortgage.

vw100

You just save on the interest, and have a slightly less mortgage and fingers crossed more equity.

dimbo61

I would guess with the current crap savings rates that you are paying more in interest on your mortgage than you get on savings after TAX ?
Overpay every time and you might have enough equity in 2 years to get a good mortgage deal because you have a better LTV below 75% or even 60%

Yorkie1

First, pay off any other debt as previously suggested.

Then, make sure you have a rainy day fund of savings - usually suggested to be 3-6 months of expenditure.

Then, if your mortgage interest rate is higher than the net interest rate on your savings, overpay within the limits permitted. Or consider a pension if you don't have any / adequate provision already.

It's great to overpay a mortgage but it's not the only relevant financial issue to consider.

robatwork

If you overpay, make sure you inform the mortgagor that you want to reduce the term of the loan, not the monthly payments.

Spidernick

Also check that you are charged interest on a daily rather than an annual balance basis.

I don't know if annual ones are still around (they were the last time I was remortgaging a few years ago and I avoided lenders who only operated these as I think they are immoral personally, given you are effectively paying interest on money you no longer owe, unless it's an interest-only mortgage), but if they are and you have one then you won't benefit interest-wise unless you pay a lump sum a few days before the lender's year end. In that scenario you should save the money until you are ready to make a lump-sum payment at this time.

Boogiecat

"Then, make sure you have a rainy day fund of savings - usually suggested to be 3-6 months of expenditure."

:rotfl:

Wishful thinking on my part!

FrankRizzo

robatwork wrote: »

If you overpay, make sure you inform the mortgagor that you want to reduce the term of the loan, not the monthly payments.

Why do you say this?

ViolaLass

robatwork wrote: »

If you overpay, make sure you inform the mortgagor that you want to reduce the term of the loan, not the monthly payments.

Some lenders will allow you to leave all arrangements the same until the end of the fixed term which means you're not tied into a shorter term and have the freedom to lower payments later should you wish to.