Implications of overpaying mortgage

socratez

Hi,
I am interested in overpaying my mortgage in the future by the maximum 10% per month. I have some questions around this;

•  If I did this and my situation changed could I revert to paying back my normal mortgage payment?

• At the end of my mortgage length (the part with the favourable rate ,2 ,5 or 10 years, not the whole 30 year length) would any future mortgage companies expect me to pay the amount as a basic normal amount? For example mortgage payment is £500, I 10% overpay so that it is £550 per payment. When I switch to a new mortgage product, would the mortgage company would expect me to pay £550 as a basic mortgage payment?

• When I change to a new mortgage product, would mortgage companies see my overpaying as negative thing and be likely to offer me a favourable rate?
• Are there any other negatives related to overpaying, as long as I am comfortably financially able to do so?

Thanks in advance :-)

dimbo61

Let's start with the easy bit it's normally 10% of the mortgage balance at the start of the mortgage or 1st of Jan each year.
So say you borrow £150,000 you can make the normal mortgage payment and overpay by £15,000 as well if you want to and can afford it.
No you don't have to make overpayments if for any reason you can't afford too.
It will of course save you paying interest on the debt and build up an overpayment balance.
You will be mortgage free sooner 
Mortgage companies don't see the overpayments all they see is your deposit so the more you overpay the bigger the deposit and better the LTV so you get the best deals.

520d2012

As @dimbo61 says you can normally overpay by 10% of the balance if you are on a fixed rate mortgage.
So if you had £150k outstanding you could pay £15k that year, obviously after year 1 your balance would be at least 15k less therefore you could overpay 13.5k assuming balance was £135k - but it would actually be less than this.
Some lenders actually allow you to underpay if you have overpaid previously and make the payment up from your overpayment balance - but you must contact them 1st before reducing payments.
No one will expect you to make any payment over your agreed amount.
Whether you pay overpayment once or regular it will NOT go against you in the future - so long as you meet your monthly commitment.
I think if you are on a variable rate you can overpay as much as you want without penalty - although this may vary lender to lender.
Overpaying would not go against you with another lender either in the future.
Look at it this way

Property value = 300k
Mortgage today = 200k
Mortgage after 5 years with overpayments = 100k
New lender will say you need a ltv of 33% LTV = excellent rate
Without overpayment if you’re mortgage balance was 150k then you would need a LTV = 50%, still good rate but not as good as 33% LTV
Future applications will only give you a mortgage on what you can afford at the time you apply not what you have paid previously

Thrugelmir

socratez said:

• Are there any other negatives related to overpaying, as long as I am comfortably financially able to do so?

Bottom line is there is no actual negative to overpaying your mortgage. Being debt free is the place to be. 

dimbo61

I am a huge fan of Offset mortgages.
We have had a couple.
We have overpaid so much each month that we were able to have a " Mortgage holidays " for a few months when things were tight financially.
We built up savings in the offset account to purchase large items when needed IE New car, kitchen, new furniture etc.
Using our savings to offset the mortgage interest meant we were paying down the mortgage quickly.
More went on the capital each month and less on the interest.
Paid mortgage off in 8/9 years instead of 22 and saved over £50,000 in Interest

Blackbeard_of_Perranporth

Thrugelmir said:

socratez said:

• Are there any other negatives related to overpaying, as long as I am comfortably financially able to do so?

Bottom line is there is no actual negative to overpaying your mortgage. Being debt free is the place to be. 

Why overpay the mortgage just to be debt free, when for the overpayment I put into the pension, the taxman gives me free money to invest that more than covers my interest! Debt free but you cannot take your house with you!

Socajam

Personally, I would not be overpaying a mortgage in this environment.
Things are too uncertain employment wise.
I would save the money in say Premium Bonds and if this time next year things are a lot clearer regarding the economy, then I would use the money and overpay.
Right now there are too many uncertainties and those with cash are going to be the survivors of this epidemic that we are living through

Thrugelmir

Blackbeard_of_Perranporth said:

Thrugelmir said:

socratez said:

• Are there any other negatives related to overpaying, as long as I am comfortably financially able to do so?

Bottom line is there is no actual negative to overpaying your mortgage. Being debt free is the place to be. 

Why overpay the mortgage just to be debt free, when for the overpayment I put into the pension, the taxman gives me free money to invest that more than covers my interest! Debt free but you cannot take your house with you!

Nor if you lose your income before repaying your mortgage fully can you live in a pension. Nor can you access the pension if your relationship breaks down and you find the need to buy your opwn property. Never let the tail wag the dog. Shelter is one of the 3 key things in life along with food and energy. 

To save your money don't buy any insurance and invest the money instead. 

thaddy

socratez said:

Hi,
I am interested in overpaying my mortgage in the future by the maximum 10% per month. I have some questions around this;

•  If I did this and my situation changed could I revert to paying back my normal mortgage payment?

• At the end of my mortgage length (the part with the favourable rate ,2 ,5 or 10 years, not the whole 30 year length) would any future mortgage companies expect me to pay the amount as a basic normal amount? For example mortgage payment is £500, I 10% overpay so that it is £550 per payment. When I switch to a new mortgage product, would the mortgage company would expect me to pay £550 as a basic mortgage payment?

• When I change to a new mortgage product, would mortgage companies see my overpaying as negative thing and be likely to offer me a favourable rate?
• Are there any other negatives related to overpaying, as long as I am comfortably financially able to do so?

Thanks in advance :-)

You may need to refer to your mortgage illustration to see what the conditions are for overpaying. If porting, ours states that any overpayment reserve built up cannot be transferred when a new mortgage is agreed.