Is it worth making an overpayment more than 10%?

halifaxmortgage

Hi guys,

I currently have a 2.3% fixed mortgage with Halifax. Current balance is approx £60K. I've been told that I can pay 10%, which is approximately another £6K on top without incurring penalties.

However if I pay more, I'll be charged 3% penalty on the extra £4K I pay, which is approx £120.

I might be wrong here, but is it still worth paying more than 10% to bring the overall balance down, thus bringing daily interest down to reduce to overall the debt?

Would I be saving or losing money?

Thanks for your help.

AnotherJoe

No it's not worth it you'd be paying 3% to save 2.3%, makes no sense, plus you should be exploring other uses for that money, if you can overpay by 10% does that imply you are a high Rate Taxpayer ? If so you are almost literally burning money by overpaying.

Peelerfart

Personally, though I am/was a big fan of overpaying a mortgage,I'd never have paid a penalty to do so.

Far better ways of spending money

Lotak

Never pay the penalty.
You are better off letting the fixed period lapse and then reducing your borrowings (i.e. overpay on the mortgage the day you product transfer, before you fix again)

getmore4less

If you overpay with penalty it takes 16 month to recover the fee.

Longer if you got interest on just keeping it in savings.

When does the 3% reduce?

halifaxmortgage

Thanks everyone for your help. I'm not a high rate taxpayer. The 3% drops to 2% in 2020. Doesn't overpaying bring down the daily interest more quickly?

My reasons for making the over payment was firstly that I don't end up wasting the money and secondly to quickly bring the mortgage down to avoid a sudden shock of higher interest rates, when the 5yr fix comes to an end in 2021...does that make sense?

If I didn't go over the 10%, what do you recommend I should do with the extra money?

OnlyGuyWhoLikesTwix

I agree with your ideas to overpay. I do so myself and while everyone is telling me it's "such a waste of money", I really don't understand why. Their usual alternative is to throw the extra money at a pension, however in my workings, I'm going to be mortgage free in 7 years and on my way to doing a BTL for my pension pot. Excuse me if I'm being obtuse but I don't really have any faith in pensions whatsoever; to me they're a cash cow for some future politician to go raiding (and it has happened before). I prefer tangible assets.

Personally if I were you, I'd put the extra into a standard ISA. It may not perform amazingly, but it's there for a rainy day and if the time comes where you have overpaid enough and the ISA money meets the extra you need to finish it then all good. Or if the day comes that the roof falls off, the money is there to meet it.

That's just me though.

AnotherJoe

Maintaining several BTLs when retired - not my idea of fun.
When did a politician raid pensions?
Have you not seen the "raiding" thats going on with BTLs and is only going to get worse?

AnotherJoe

halifaxmortgage wrote: »

Thanks everyone for your help. I'm not a high rate taxpayer. The 3% drops to 2% in 2020. Doesn't overpaying bring down the daily interest more quickly?

Not quickly, no. Slowly. In a regular saver you could get 3% a year on the overpayments that otherwise are making you 2.3% so even if you dont want to do anything else with the money than reduce your mortgage, set up a regular saver and put it in that, and use that to reduce the mortgage as a lump sum when you remortgage in 2020.

ViolaLass

AnotherJoe wrote: »

When did a politician raid pensions?

Gordon Brown wasn't that long ago.



OP, I'd put it in Regular Savers (5%) or I'd invest it or I might put it into my pension. Exactly which would depend on the amount and my circumstances.

Yes, overpaying would bring your balance down more quickly and would save you interest but doing other things could easily save you MORE.

If you're worried about the interest rates in 2020, it doesn't matter whether you overpay bit by bit now or in one lump sum in 2020.

halifaxmortgage

@ OnlyGuy - Not sure about the BTLs due to the toughening of rules for landlords, but my aim is to bring down the mortgage as quickly as possible. The way I see it is that I'm taking a small penalty hit per annum, but I'm making a big dent in the amount of debt I owe. At this rate I should hopefully be debt-free within 10yrs, rather than 25yrs.

@ AnotherJoe - The question is though, even though the daily interest comes down slowly, is it enough to counter the penalty loss occurred? Also what savings account can you recommend? Is there a max limit on how much I can save and will I be taxed on it?