First TIme Buyer - Overpaying

Grizz90

Hi all,

Currently waiting on our mortgage to be accepted and the whole process to got through the motions.

My question is..... Hopefully we should be in a position to overpay the monthly payments by around £100 (Fingers crossed).... Would it make sense to do this from the outset, or should you wait until the introductory rate (2.49%) has completed?

Very naive to all this at the moment.

Thanks

Thrugelmir

Do you have an emergency savings pot? Enough to cover a few months of expenditure.

Grizz90

Hi,

Yeah my wife and I both have decent incomes, so should be able to over pay a little whilst still saving up a little each month.

I was more wondering if it made a difference with how the interest is payed.

ACG

Usually, mortgage interest is charged on a daily basis.
So on the first of the month your DD comes in and reduces your balance. The balance then increases every day until your next payment hits and so on. The amount it increases by is quite small and less than your monthly payment.

So the sooner you overpay, the bigger impact it will have. As an example, if you overpaid by £100 every month, it would mean you pay less interest than if you paid £1200 at the end of the year.

But check your paperwork. Some lenders still charge interest annually, in which case it would be financially better to put the money in savings and then overpay a lump sum at the end of the year.

ACG

https://www.lloydsbank.com/mortgages/mortgage-overpayment-calculator.asp this is quite a good calculator to get a visual idea of how much impact it can have.

Obviously this assumes your interest rate remains the same for 20-30 years so it is not perfect but it is a good indication.

Grizz90

Thanks for the replies guys!

Just getting a bit restless, it's been a whole week since we instructed the solicitors!

Lauralou79

We had a good saving pot when we moved to buy things etc. We both have savings for emergencies now. So after 6 months we set up an overpayment of £100 monthly. Partly because I hate seeing that balance every time i log into banking! I'm also still able to save money monthly too.

People may advise you on your savings and wether you have a better rate on savings it's better to save. Also with pensions, is it better to put money into a pension? ( I pay into an NHS pension so that's covered) All dependant on personal circumstance I guess. There's loads of great advice on the mortgage free board once you are in and paying your mortgage... good luck!