HELP! 10% Over Payment Without fee per year - How does this work out down the line?

Merchandiser2367

Hi All,

We are looking to over pay our mortgage as much as possible

Looking to change it to a 5/10 year fix in January, 15 year term and hopefully pay it off in 7 years or so - using MSE Over Payment Calculator -

http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator


But, does this take into consideration that most mortgages only allow up to 10% over payment per year of mortgage?

Our mortgage will be £146,000 and if we over pay by £900 a month, we can be clear in around 7 years.

BUT, this would take it well over 10% in years 3,4,5,6 & 7. Does this mean we can't clear it in 7 years due to the 10% Cap??

Bit confused at the moment!

Thanks

Whoknowskt89

At £146k at starting point, 10% will allow you to overpay £14.6k.
When your mortgage drops and, for example, year 3 pops up and you're at £100k you are only allowed to overpay 10% of that, so £10k.
I believe most mortgages you can overpay more than the 10% but there is a penalty for doing so and I believe it is tied into the ERC amount.

If you go for a 5 year fix you could overpay by 10% each year then keep any excess in savings ready for when the fix is up.

Hope that helps!

edinburgher

Just go for a 5 year fix and sit on the lender's standard rate for a couple of years?

Merchandiser2367

Whoknowskt89 wrote: »

At £146k at starting point, 10% will allow you to overpay £14.6k.
When your mortgage drops and, for example, year 3 pops up and you're at £100k you are only allowed to overpay 10% of that, so £10k.
I believe most mortgages you can overpay more than the 10% but there is a penalty for doing so and I believe it is tied into the ERC amount.

If you go for a 5 year fix you could overpay by 10% each year then keep any excess in savings ready for when the fix is up.

Hope that helps!

Thank you for your advice on this, this is a great idea and what we will probably do then - save the excess and then pay it onto the mortgage at the end of the 5 year fix!

Thanks for suggesting this, very helpful!

A_Frayed_Knot

If you go for a 5 year fix but actually reduce your term time; ie - were you thinking of taking a 5 year fix mortgage over 10 years, if so, then reduce the years, that would then up your monthly payments, which would then take into account part of your monthly overpayment, which would then still give you an option of a 10% overpayment on top.

Example
Mortgage just now 5 year deal at £800/month over 20 years - and can afford a £900 monthly o/p.

I would when current deal finished, look for new deal monthly payments of say £1500 which would probably reduce the years to say 9 years, which would then allow me to still o/p 10%.

Hope you can follow all that. If not. I'll be back tonight after work.

lulabelle1

I'm with nationwide and the 10% OP allowance is based on the principal sum borrowed at the fixed rate - so the OP allowance remains the same per annum, it does not decrease. Not sure about other lenders. Ask the question to you lender....

Merchandiser2367

lulabelle1 wrote: »

I'm with nationwide and the 10% OP allowance is based on the principal sum borrowed at the fixed rate - so the OP allowance remains the same per annum, it does not decrease. Not sure about other lenders. Ask the question to you lender....

Thank you, we are using a broker some will ask this specific question!

Merchandiser2367

A_Frayed_Knot wrote: »

If you go for a 5 year fix but actually reduce your term time; ie - were you thinking of taking a 5 year fix mortgage over 10 years, if so, then reduce the years, that would then up your monthly payments, which would then take into account part of your monthly overpayment, which would then still give you an option of a 10% overpayment on top.

Example
Mortgage just now 5 year deal at £800/month over 20 years - and can afford a £900 monthly o/p.

I would when current deal finished, look for new deal monthly payments of say £1500 which would probably reduce the years to say 9 years, which would then allow me to still o/p 10%.

Hope you can follow all that. If not. I'll be back tonight after work.

Thanks for your thoughts on this! We did think of doing this but most people we have spoke to and articles read (including Martin Lewis) say it's best to have a higher term and use overpayments as this gives you greater flexibility I.e, if one month you need a little extra money for whatever reason, you have the money to do so.