Maximising overpayment - good idea (just now) or not?

A few years back, our mortgage deal expired and I agonised over whether to go for another fix or leave things to chance. The general expectation at the time seemed to be that rates couldn't remain so low indefinitely... hah. So yes, we signed up to another 5-year deal and have been paying more than necessary ever since (2.09% - could be better, but could be worse). Having been saving as much as we could manage, last year I decided the best idea was to overpay the mortgage by the maximum amount (per year) that is allowed without incurring penalties, so reducing the balance, minimising interest and shortening the life of the mortgage. I had planned to do the same this year when we hit the anniversary date at the start of this month, but in the midst of a global crisis never quite seen before and with so much uncertainty, I'm now wondering if that would be a wise move.

On the one hand, we have saved specifically for this purpose so we do have some money to sink into the mortgage whilst still keeping a savings buffer for other needs. And with savings rates so pitifully low (and stocks so volatile), it would seem better to pass up something like 1.5% on savings in order to save 2.09% on mortgage interest (to put it simplistically). On the other hand, what on earth is going to happen to house values as and when the virus has finished wreaking its havoc (is it safe to assume things will just bounce back?), is it a good idea to overpay whilst others are doing the opposite and taking payment holidays. The obvious consideration is financial security and thankfully our household income seems relatively secure compared to many at the moment (though nothing's ever guaranteed), so together with the other savings I'm kind of leaning towards going ahead with the overpayment, but it's nagging at me that I might be overlooking some other consideration, with all the turmoil there is just now.

I realise this comes under the category of 'nice problems to have' in the circumstances, but if anyone has thoughts on the wisdom or otherwise of committing cash to property (safe as houses?) at the moment, I'd be grateful to hear them.

Replies

  • mark55manmark55man Forumite
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    personally given the fact that mortgage companies are pretty much shutting down lending, and that the future for the next 3-months is rocky I would look to maximise cash over mortgage until its a bit clearer.  you won't lose much by doing this as you can get over 1.5% on savings with a bit of work (or now could be a time to put some money into a very depressed global stock market - but that would be riskier - although there are cautious options, and I would hold off until Boris gets better).  
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  • LarchesLarches Forumite
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    Ugh, just had a letter saying my cash ISA rate is dropping from 1.40% to... wait for it... 0.25%. :o:'( Not that I should be surprised, given everything that's going on & two base rate drops in quick succession. That on its own would nudge me towards making the overpayment (0.25% vs 2.09%!) but looking at the latest savings tables, it seems there are still plenty of accounts offering >1% for now. Not sure if it's just taking a while for the base rate changes to filter through or what. Tempting to snap up some relatively cheap units in the stock market but wouldn't like to guess how much further things have to fall or how long recovery will take.
  • MoneymindedMoneyminded Forumite
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    If this were me I would be considering a number of things
    1. Do you have 3-6 months worth of expenses saved in an emergency fund, if not this would be my priority
    2. How secure is secure in terms of your job/ income, if you work for the NHS or other emergency services right now I would say you are pretty safe
    3. Do you have any big expenses coming up that you should be saving for i.e. is your car really old and might not last much longer, is your boiler on the blink and might need repairing/ replacing soon, etc? If so, I would put some money aside for these big one-off but predictable expenses
    4. Does it have to be an either/ or scenario? Would you consider moving 50% into savings and 50% as a mortgage over payment for example? That way you are putting some of your money to the purpose for which it was saved whilst also giving yourself a little buffer. 
    Really the choice is yours depending on your particular circumstances
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  • LarchesLarches Forumite
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    Thanks @Moneyminded.
    1 - yes, although partly thanks to redundancy payout!  :/  Hence...  2 - Mrs is main breadwinner, and she is NHS although not frontline. Still probably relatively secure as far as anyone can predict right now. We can get by on her wage as long as we're reasonably careful (and we normally are). 3 - good point, we do have some household maintenance that needs doing and I really need to tot that up. 4 - also a good point, no it doesn't have to be all or nothing. I'd just had it in mind to overpay by the maximum ASAP to reduce the debt and amount of interest we end up paying, but if we paid 50% now (or whatever) we could still see how it goes over the coming months and then overpay more later if it seems prudent to do so. That does feel like a good compromise. :)
  • LumionaLumiona Forumite
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    I have the same issue but we've decided to keep building up the savings until things level up a bit more. I have been sending odd sums to the mortgage and keeping the savings to the nearest £100. I'm treating it as a mortgage neutral account, the money is there to be paid off the mortgage but we can use it if needed.
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