Best way to Overpay

spudgun27

Hi all

I'm a bit of a newbie here, please go gentle on me!

Due to a recent bereavement and a subsequent inheritance, we are in a position where we can pay off a bit of our mortgage.

The mortgage product we have allows us to pay off £14,000 without any charges.
As interest is calculated daily, I would assume that to get the biggest 'bang for our buck' we would be best to chop the whole £14,000 off the capital ASAP?

Many thanks in advance!

[Deleted User]

That's right - assuming your mortgage rate is higher than anything you can get on your savings.

And if your pensions are in good shape.

dimbo61

100% right
However do you have any other debts ?
Do you have an Emergency savings pot in case the car is off the road or you need a new fridge/freezer, wshing machine etc???
The sooner you overpay the more Interest you will save.
If you pay the full 10% overpayment allowed you will get a new statement with your new monthly payment.
You might not be allowed to keep the OLD payment as you would then overpay bu more than 10% for that year.

spudgun27

Deleted_User wrote: »

That's right - assuming your mortgage rate is higher than anything you can get on your savings.

And if your pensions are in good shape.

I used the checker on MSE and it said I'd need 2.9% savings to beat overpaying the mortgage.

However we don't have pensions. We still have a reasonable amount to one side from the inheritance, with which we are looking to buy a 2nd property to let (in place of a pension).

I've yet to be convinced by pensions, though I'm here to be persuaded!

spudgun27

dimbo61 wrote: »

100% right
However do you have any other debts ?
Do you have an Emergency savings pot in case the car is off the road or you need a new fridge/freezer, wshing machine etc???
The sooner you overpay the more Interest you will save.
If you pay the full 10% overpayment allowed you will get a new statement with your new monthly payment.
You might not be allowed to keep the OLD payment as you would then overpay bu more than 10% for that year.

No other debts, and we have an emergency fund.
Our BS has told us that the payment must drop, but as interest is calculated daily I guessed that it would save more by paying off the lump sum ASAP rather than saving a bit of our yearly allowance (so that we could keep our old payment levels going too).

Thanks to you both for your help!

[Deleted User]

spudgun27 wrote: »

I've yet to be convinced by pensions, though I'm here to be persuaded!

Pensions are only good if you like lots of free money and being able to turn the heating on when you're old.

spudgun27

Deleted_User wrote: »

Pensions are only good if you like lots of free money and being able to turn the heating on when you're old.

Sorry I wasn’t very clear. Our plan is to buy a second property which we will downsize to in the future, and sell our first home to live off. Would you say a pension is a better bet?

getmore4less

spudgun27 wrote: »

I used the checker on MSE and it said I'd need 2.9% savings to beat overpaying the mortgage.

What rate is your mortgage?

Thrugelmir

spudgun27 wrote: »

I've yet to be convinced by pensions, though I'm here to be persuaded!

You'll never experience the tenant from hell.

Do you want to run a business? As that's what a BTL is. Once in you need to be fully committed. As otherwise could be a costly exercise.

nicholbb

Regarding a pension, you need to see an Independent Financial Adviser. You used to be able to put property into a pension, using a SIPP.

Pensions are more reliable than a house, not saying the house is a terrible idea... maybe I am actually.
For your mortgage, you are spot on with paying early reducing the interest. See if you can reduce the term so you have higher monthly payments.
Also, annoying as it is, it may be better to pay the early repayment charge if you can pay lots off. Also see if your bank does an offset account (some allow you to add one).

spudgun27

Thrugelmir wrote: »

You'll never experience the tenant from hell.

Do you want to run a business? As that's what a BTL is. Once in you need to be fully committed. As otherwise could be a costly exercise.

Sorry for the late reply :-)

I guess this is a whole other point for another day, but I guess that comes down to how well you purchase in the first place? A friend has done BTL for many years and always stuck to the same criteria - buying newish properties (less likely to have probs with the building), regular maintenance schedule, particular about who he rented to.

getmore4less wrote: »

What rate is your mortgage?

Hi :-)
Its 2.29% fixed until May 2020.