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Regular Overpayments vs One off payments

edited 30 November -1 at 1:00AM in Mortgage-Free Wannabe
8 replies 984 views
leegmacleegmac Forumite
6 Posts
edited 30 November -1 at 1:00AM in Mortgage-Free Wannabe
Hi all, looking for some advice.

I owe £88k on my mortgage and 12years left, paying the variable rate of 2.5%. I'm paying £668 p/m and can overpay by £600 p/m. Using the calculator that will bring me to 6 years.

My question is, am I best to do that or to save the money and pay big one off payments. Maybe annually or even after 5 years?


My credit rating is only 'fair' due to some issues I had a few years ago now so I have not tried to change mortgage, I also want to make these overpayments without fees/fines.

Am I doing right, or should I be trying to get another mortgage?

Any help would be appreciated.

Lee
:T
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Recieved £1240

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Replies

  • VDOT47VDOT47 Forumite
    277 Posts
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    If you can save your £600 per month into regular savings account which are earning more than 2.5%, which should be easy to do (FD, Nationwide for example do regular savers at 5%, although you need a basic current account with them first) then I would save into those for a year and then pay the lump sum plus interest off the mortgage once a year.
    Original Mortgage (Feb '17) £269,995
    Current Mortgage (End 11/19) £226,790
    End Date November 2039 Original End Date February 2042
  • leegmacleegmac Forumite
    6 Posts
    I'm not great with the maths but does that save the same amount off the mortgage (lets say I had a savings account with 2.5%, same as the mortgage). Does it make no difference when you make the payment, monthly or annually...you save the same amount of interest on your mortgage?
    :T
    First Direct -
    Claimed £1340
    Recieved £1240

    Nat West
    Claiming £30 (Why not?)

    Claiming -
    First letter asking for charges sent to -
    Yorkshire Bank + Visa
    Egg
    Capital One
    Barclaycard
    Morgan Stanley

  • YouthgonewildYouthgonewild Forumite
    167 Posts
    Third Anniversary 100 Posts
    Hi Lee. have you tried playing around with the mse overpayment calculator? You can see what the difference is between making a one-off payment vs making regular occurring overpayments. For example, what difference does paying £1200 make in the first year vs paying off £100pm for 12 months.

    It also depends when interest is calculated I think. If your interest rate is calculated daily, it probably makes more sense to pay off a large lump sum. Someone may want to come along and correct me on that though.
    Mortgage balance October 2015: £99875
    Mortgage balance November 2017: £97583

    Mortgage balance November 2018: £90952.08
    Mortgage balance December 2018: £90470.65
    Mortgage balance June 2020: £79561.39
    Mortgage balance October 2020: £77686.25
  • edited 10 July 2018 at 4:51PM
    VDOT47VDOT47 Forumite
    277 Posts
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    edited 10 July 2018 at 4:51PM
    On your example, on a mortgage of £88,000 over 25 years @2.5% if you saved up £600 pcm into a savings account then paid off the full £7200 in 1 year's time, your balance then would be £78,234. You would also have the interest earned in the regular savers (at 5-6%, perhaps £180-200) to overpay as well. So your balance would be approximately £78,035 - £78,050.


    If you overpaid the £600 each month as you went along your balance would be £78,151.


    So by my maths (using the overpayment calculator on this site), at the end of year 1 you'd be better off by about £100 by using the regular savers.
    Original Mortgage (Feb '17) £269,995
    Current Mortgage (End 11/19) £226,790
    End Date November 2039 Original End Date February 2042
  • edited 10 July 2018 at 4:54PM
    beefturnmailbeefturnmail Forumite
    833 Posts
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    edited 10 July 2018 at 4:54PM
    Think of it like this: At the end of each month, do you have somewhere to put the spare £600 which earns more than 2.5% interest? If the answer is yes, you are better off doing that, if no, better off paying off the mortgage. The difference is simply the difference in interest e.g. if you put it in a 5% regular saver, you are better off by £15 p.a. for each chunk of £600. When the Regular saver matures ask yourself the same question on the whole amount e.g. do I have anywhere to put this (say) £3k which earns more than 2.5%. Also factor in that once you pay of the mortgage you lose access to the cash i.e. you can't use the money to pay for something unexpected (a new boiler, major car work etc), like you could with savings. IMHO this means it's worth keeping some in savings even if it earns slightly under your mortgage rate.
  • VDOT47VDOT47 Forumite
    277 Posts
    ✭✭
    PS - redone the maths for a 12 year term (missed this on a first read through!) and the figures are still that you are about £100 better off using the regular savers than the monthly overpayments.
    Original Mortgage (Feb '17) £269,995
    Current Mortgage (End 11/19) £226,790
    End Date November 2039 Original End Date February 2042
  • leegmacleegmac Forumite
    6 Posts
    Thanks folks, really helpful.

    I think I will look for the best saving account I can find. I suppose as long as my savings are above the mortgage rate then I'm doing right!


    So, taking that advice, I should try to find a fixed term deal and pay less which means more for the savings. I should always fall out into the variable rate again which means I can then overpay when I have a big chunk to pay.


    Thanks again.
    :T
    First Direct -
    Claimed £1340
    Recieved £1240

    Nat West
    Claiming £30 (Why not?)

    Claiming -
    First letter asking for charges sent to -
    Yorkshire Bank + Visa
    Egg
    Capital One
    Barclaycard
    Morgan Stanley

  • beanieloubeanielou Forumite
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    Can you trust yourself not to touch the money in the regular saver?
    If in any doubt pay off the mortgage.
    Lou~ Debt free Wanabe No 55 DF 03/03/14.
    **Credit card debt free 30/06/10~**
    MFW. Finally mortgage free February 2021****
    "A large income is the best recipe for happiness I ever heard of" Jane Austen in Mansfield Park.
    ***Fall down seven times,stand up eight*** ~~Japanese proverb.
    It starts with you, it starts from now. *** It is ok to be me.***
    ***Keep plodding***
    Out of debt, out of danger. ***Be the difference.***
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