when to overpay

mrsbneeg

We (hubby and I) moved house in January and started a 20 year mortgage of £82000. The mortgage is a repayment fixed for the term at 5.97%. Interest calculated daily. We are able to overpay be £5000 per year and have windows at years 6 9 11 and 15 to repay in full without penalty. We received some money in October that has allowed us to pay £5000 off the capital (taking us to 17.4 years :T and £75980 and enough to do the same next year (ie in January). My question is...is it better to pay the £5000 at the beginning of the mortgage year or to overpay each month £416.00 (£5000 divided into 12 months).
We have never really thought about overpaying, to allow us to be mortgage free, but after reading posts on this forum, we have the bug and are determined to repay our mortgage as quick as funds will allow (hopefully in window 6) Thanks in advance
Nic


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Today, 3:52 PM

sdooley

best to pay in one go, the mortgage interest will be reduced from day one, plus you won't be tempted to spend it

Kaz2904

Before you overpay in January do make sure that you won't be running into the previous years window and get charged (if you see what I mean).
If you aren't going to incurr a charge then it's best to make that payment on the first day you are able to as it will have the greatest impact.
I have noticed that your interest rate is lower than an ISA could earn you so do have a look because you might be better off by sticking that money into an ISA- one for you and one for DH. Once you have let this build up to a fair amount you can investigate offset mortgages which will allow you to include your ISA allowance in the offset part.
The good thing about this is that you will be able to invest more than £3000 into an ISA after next year.
Hope this has given you some food for thoughtand do investigate this fully before you leap into it.
I am currently on the MFi3 challenge and I will be changing my strategy soon and cutting the overpayments right down until both mine and DH's ISA's are full each year. TTFN,Kaz.

jamesd

Why save mortgage interest at 5.97% when you can get over six percent from a cash ISA? The time to overpay is when you can no longer make more interest saving than you're paying in mortgage payments.

If you have a sufficiently large amount of money to make many 5,000 payments then you might want to do that each year even though it loses you money compared to saving. But in this case you should also check the penalty for paying a higher amount off because it may still pay to do it in one chunk and take the penalty instead of waiting several years for penalty-free overpayments.