Only 10% OverPay per year - Is it worth it?

Hi
I am new here so trying to find my feet. Our mortgage only allows us to overpay by 10% of the outstanding balance per year. I have looked on their overpayment calculator and that only takes 4 years off our mortgage.

Ours is still pretty big too. We have an outstanding amount of 189,000 and 26 years left. I want to try to shave as much of that time off as possible. Am I better off trying to just save the money in a savings account and paying it off in a lump sum or is there a way of getting around this 10% thing?

Thanks x

Replies

  • Zero_SumZero_Sum Forumite
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    Usually the month before you remortgage you can overpay what you want without penalties. So you can utilise regular savers which at 5% will be more than you mortgage. Also look at fixed term savings deals with challenger banks. If you're clever about it you could be better off putting money in savings then overpay at end of deal.
  • julicornjulicorn Forumite
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    I think there's something off with your calculations. 10% is of your outstanding balance, not your regular payments. So this year, for example, you're allowed to pay off £18.9k, and that resets to 10% of what's left every year. At the end of your fixed rate, you're allowed to overpay as much as you like.
    Either way, all that should shave off substantially more than 4 years. Unless you're talking about only ever overpaying once? Sorry if I'm missing something.
    Original mortgage: December 2017, £203,495
    MFW start: April 2018, £201,800
    Current: £90,000 (-£12,500 savings pot)
  • Zero_SumZero_Sum Forumite
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    julicorn wrote: »
    I think there's something off with your calculations. 10% is of your outstanding balance, not your regular payments. So this year, for example, you're allowed to pay off £18.9k, and that resets to 10% of what's left every year. At the end of your fixed rate, you're allowed to overpay as much as you like.
    Either way, all that should shave off substantially more than 4 years. Unless you're talking about only ever overpaying once? Sorry if I'm missing something.

    With mine its 10% of original borrowed. It doesnt reset every year. It even carried over when i remortgaged. So i could in effect now overpay by nearly 20%
  • julicornjulicorn Forumite
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    That's awesome - ours resets every year unfortunately, and the way Lisa phrased it ("of the outstanding balance" rather than of the original balance) made me think hers does too.
    Original mortgage: December 2017, £203,495
    MFW start: April 2018, £201,800
    Current: £90,000 (-£12,500 savings pot)
  • edited 30 September 2018 at 6:18PM
    anna42hmranna42hmr Forumite
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    edited 30 September 2018 at 6:18PM
    Hi
    I am new here so trying to find my feet. Our mortgage only allows us to overpay by 10% of the outstanding balance per year. I have looked on their overpayment calculator and that only takes 4 years off our mortgage.

    Ours is still pretty big too. We have an outstanding amount of 189,000 and 26 years left. I want to try to shave as much of that time off as possible. Am I better off trying to just save the money in a savings account and paying it off in a lump sum or is there a way of getting around this 10% thing?

    Thanks x

    As mentioned in the mortgage free challenge, don't forget that whilst it may only take 4 years off the mortgage, it can also save a considerable amount of interest.

    For example if your mortgage was at 3% and you only overpaid by £100 a month for the rest of the term that would save over £13,000 in interest paid (and knock 3 years and 9 months off). The £100 a month alone would be within the 10% allowance until your mortgage was at £12K, so would be a long time before you would worry about the annual over payment limits (indeed on figures above you can OP by up to £18,900 this year alone, and whilst this will decrease when the balance does if you have one that re-sets every year, it will be in line with the balance of the mortgage).

    Increase this to £200 a month would increase the amount saved in interest by nearly £23K
    MFW # 105
    2015 Overpaid £8095 / 2016 Overpaid £6983.24 / 2017 Overpaid £3583.12 / 2018 Overpaid £2583.12 / 2019 Overpaid £2583.12 / 2020 Overpaid £2583.12

    2021 Target £2000 / 1,506.82 OP as at July

    Total OP since mortgage started in 2015 = £27,917.54
  • julicorn wrote: »
    I think there's something off with your calculations. 10% is of your outstanding balance, not your regular payments. So this year, for example, you're allowed to pay off £18.9k, and that resets to 10% of what's left every year. At the end of your fixed rate, you're allowed to overpay as much as you like.
    Either way, all that should shave off substantially more than 4 years. Unless you're talking about only ever overpaying once? Sorry if I'm missing something.

    Yeah I think I've calculated the amount of time it would know off wrong - sorry completely new at all of this lol. But yes our mortgage states we can overpay by 10% of the outstanding amount so it does recalculate every year. I'll go have another look now lol. Thank you!
  • julicornjulicorn Forumite
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    Yeah I think I've calculated the amount of time it would know off wrong - sorry completely new at all of this lol. But yes our mortgage states we can overpay by 10% of the outstanding amount so it does recalculate every year. I'll go have another look now lol. Thank you!

    No worries - these sort of things are quite confusing sometimes, especially when it's something you haven't looked into before. Either way, you should be able to shorten your mortgage term quite significantly, and save lots of interest :)
    Original mortgage: December 2017, £203,495
    MFW start: April 2018, £201,800
    Current: £90,000 (-£12,500 savings pot)
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