Talk me through overpaying please. 29 March 2015 at 1:03PM in Mortgage-free wannabe 7 replies 852 views

LiveSimply

I'm new here, don't have a mortgage but hopefully will have in the future.

I understand overpaying, I have looked at the calculator, I have read what Martin has said.

But I have seen on rightmove that some houses are being sold for the same as they were bought for 5 or even 10 years ago. I know overpaying is good, but my brain stops working when I see these houses making no profit. It must be beneficial to overpay on these houses too, but how? Why?

Monkey_

I think you are mixing up two issues here. Overpaying is good as it means in the long run you will pay less interest on the amount of money you have borrowed. If you have looked at a overpayment calculator just enter in how much you would overpay a month and see how this affects the total interest paid at the end of the term.

Overpayment however has no bearing on house prices themselves - the value of the house you buy can go up / down or stay the same. Its up to you to decide if the house is worth the money compared to how much it would cost to rent something similar etc

shsm

Overpaying your mortgage with a view of clearing the debt ASAP gives people financial security in the sense that if you own your house the bank can't take it off you should there be a change in your circumstances like struggling to make payments

anselld

The price of houses is irrelevant. You have borrowed money at a net interest rate x. You can save at a net interest rate y. Overpayment is worthwhile so long as x>=y.

LiveSimply

Thanks. And that leads me onto my next question - if you overpay in times of feast, can you then underpay in times of famine, as long as you have paid off more than you should have?

Like if you owe £100 a month (for example) and you actually pay £500 a month, can you at some point drop down to £80 a month as long as you have paid an average of over £100 per month? I'm guessing not, am I right?

I know these must seem really basic questions, I'm just trying to get my head around it all.

jodles16

I think there are some mortgages out there which allow you to claim back any overpayments you have made, but I think the majority don't... I could be wrong though! It's important to ask, we are all beginners when we first start!!

Jodles

ajmoney

Some products allow you to reclaim the overpayments, others allow you to take a payment holiday until the amount you have in reserve is used up. I find it easier to only overpay what I know I won't miss but if you are worried that you may need access to the money at a later date then maybe make sure your mortgage has one of those facilities attached to it.

There may be people who have other mortgage products who can advise better who will be along soon.

ViolaLass

LiveSimply wrote: »

Thanks. And that leads me onto my next question - if you overpay in times of feast, can you then underpay in times of famine, as long as you have paid off more than you should have?

Like if you owe £100 a month (for example) and you actually pay £500 a month, can you at some point drop down to £80 a month as long as you have paid an average of over £100 per month? I'm guessing not, am I right?

I know these must seem really basic questions, I'm just trying to get my head around it all.

If you had overpaid each month for some years, let's say, without changing the term you could then remortgage (subject to the bank's approval) and keep the original term (which would drop your payments).