Overpaying mortgage

My partner and I are considering whether it makes sense to overpay on our mortgage.

Our mortgage is fixed for 5 years at 2.24%, till mid-2021. We are able to overpay up to 10% of the current mortgage balance.

I read Martin's excellent article explaining the pros and cons (mostly pros) of overpaying mortgage in the current climate, but I'd like to make sure it'll really work for us. Some questions:

- The online calculator gives an interest rate that your account needs to pay to determine whether it is worthwhile overpaying your mortgage in savings. We have multiple current and savings accounts (i.e. regular savers at 5%, high interest current accounts at 5% at a certain balance, Cash-ISAs and bonus interest savers). For me as an after-higher rate, I would need to have at least 3.7%. Is that 3.7% an average rate over all my accounts? Which accounts would I consider?
- Does the current rate of inflation influence decision on overpaying mortgage?
- With banks indicating hike in interest rates imminently, does this decision become even more important?

Thanks in advance.

Replies

  • tacpot12tacpot12 Forumite
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    The 3.7% would only be average across all accounts, if you were going to withdraw money from all of your existing accounts equally and pay off your mortgage with this money.

    If your choice is between saving additional money from your income or overpaying your mortgage from this income, then the 3.7% applies to the account where you would put this income.

    The current rate of inflation might affect the decision on overpaying your mortgage if it is likely to result in either your savings rates increasing OR your mortgage rate increasing. In your case, with your fixed mortgage rate, you only need to consider whether any of your savings accounts might start to receive a high rate of interest if inflation continues to rise.

    Because you are on a fixed mortgage rate, you don't really need to take action quickly, BUT one of the biggest benefits of overpaying your mortgage is that it reduces the amount of compound interest you pay, so the sooner you start the more you save.

    If you are achieving an average of 3.7% interest on existing savings and can add more money to all these accounts, then overpaying your mortgage is not the best option for you. It might be when your fixed rate mortgage deal expires.
    The comments I post are my personal opinion. While I try to check everything is correct before posting, I can and do make mistakes, so always try to check official information sources before relying on my posts.
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