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How/when do you overpay?

DD265DD265 Forumite
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All being well, we'll move into our first purchased home next month.

We've got a 95% mortgage at a reasonable interest rate on a 5yr fix, and I'm already thinking about overpaying. In an ideal world, we'd like to get lower LTV when we remortgage in 5 years to get the best rate we can.

We do need to build up savings (we have a small emergency fund, but I want a year's take home on top) plus we have credit card debt to pay off and the latter needs to take priority. The question we don't know the answer to, and what would have the biggest impact on all of this, is whether we'll have children. We set ourselves a 5 year deadline to decide/act on that too.

I'm thinking we could round the regular payments up to the nearest hundred which would be an OP of about £25 a month. That should be affordable from day one, and then I feel like we're achieving something. In theory if we then focus on savings, at the end of the fix we could use some of those savings to pay off a lump sum to get us into a better LTV. Does that seem like a reasonable approach?
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Replies

  • Barny1979Barny1979 Forumite
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    How old are you OP? As a 25 year mortgage, how old would you be?
  • To answer your first question..
    My mortgage company gave me
    3 options..
    1 a fixed monthly over payment by direct debit.
    2 Post them a check as and when, no minimum amount.
    3 They gave me bank details so I can bank transfer money directly to them.

    I'm using option 3 because it gives me flexibility and its very easy.
    I'm only 4 months into making overpayments.

    Honestly... I wish I has started over paying as soon as I got my mortgage. £25 a month will chip away. Once yoy've paid off the cc you can always pay off a little bit more.
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  • Me again..
    I was also given the option for the use of the over payments.

    1.. could be used to reduce monthly payment but not the term of the mortgage
    2.. to reduce the term but my monthly repayment stays the same.
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  • Barny1979Barny1979 Forumite
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    Me again..
    I was also given the option for the use of the over payments.

    1.. could be used to reduce monthly payment but not the term of the mortgage
    2.. to reduce the term but my monthly repayment stays the same.
    Personally go for the first, as second isn't overpaying really?
  • cod3cod3 Forumite
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    Barny1979 wrote: »
    Personally go for the first, as second isn't overpaying really?

    Are you sure about that? I do option two as reducing the term means paying less interest over the years..
  • getmore4lessgetmore4less Forumite
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    Forget the term it just sets a minimum payment.

    What you pay is all that matters, till your overpayments start to hit limits and ERC penalties.
  • DD265DD265 Forumite
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    We're 30, the mortgage is £150k over 25 years, 5 year fix at 3.76% then onto variable rate.

    Typing this I'm confident that we'd not look to reduce the mortgage repayments at any point, instead reducing the term. Obviously that's not set in stone, particularly if we did decide to have a child, but that's what the year's take home would be to cover. If we opt not to have children, then that money is theoretically available to pay down the mortgage.
    Honestly... I wish I has started over paying as soon as I got my mortgage. £25 a month will chip away. Once you've paid off the cc you can always pay off a little bit more.

    This is what I was thinking, it's a small start but at least it's a start. The repayments of £771 a month feel like a lot, but the jump from there to £800 a month feels insignificant.

    If interest rates go up/we don't get a better LTV by the time we look to remortgage, then we could be facing even higher repayments and we'd rather dodge that bullet if possible!
  • pavlovs_dogpavlovs_dog Forumite
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    When we took on our mortgage as FTBs 9 years we took a similar approach, rounding our contractual payment up to a round figure. We got used to budgeting around that. As the debt reduced, we kept our contractual payment the same, effectively giving us 'free' OPs as it was money we had learnt not to miss. We have topped this up with additional spare money when we have been able.

    We kept our mortgage term the same, so that if/when we decide to have children we have the option of dropping our mortgage payment down to our contractual obligation, thus enabling us to afford for me to have a longer maternity leave.

    When you first start OPing, it feels like a drop in the ocean. It is very motivating to have small, achievable targets to work towards (celebrating a new 10K bracket or the fall of daily interest for example). Those small payments do add up. At the start of our mortgage debt our capital was reducing by about £300 each month. Now it goes down by more than £700 a time. The amount leaving our back account each month has barely changed in the 9 years.

    Slow and steady wins the race!
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  • Zola.Zola. Forumite
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    My mortgage provider only lets me do overpayments of a minimum of £1000 each time when I call them, so thats what I have always been doing, sporadically!

    However, I called them a few days ago to make a new OP and asked if I can just bump my monthly amount up by £25 each month as well, and they said no problem (its tied to the 5 year fix term we have), so I am essentially paying off an extra £25 from the capital every month now...
  • edited 4 January 2019 at 4:44PM
    FTBlalalaFTBlalala Forumite
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    edited 4 January 2019 at 4:44PM
    Slow and steady definitely the way to go, we've been home owners for almost 7 months now and have been overpaying at least something every month. We have a similar plan to move to a more long term home in 5 years or so (we currently have a 2 bed maisonette but would like a 3 bed house eventually). So we have been upping our game every month to build as much equity as we can.

    The best tip I ever received was to keep the current mortgage balance outstanding always at 00.00 *edited* at the end. So every month we have random OP's like this month £203.43 so we're now at £212,900.00 for example.

    At the beginning this was just £24.20, £57.54, £127.21 for example. The more the bills settled down the more we could commit to OP'ing.
    Bought First Home - June 2018 Starting £218,500 June 2020 £203,800.95 :T MFW 2020 #78 - Target £3000 - So far... £2182/£3000
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