How to maximise monthly debit payment 8 August 2020 at 11:03PM edited 10 August 2020 at 10:53AM in Mortgage-free wannabe 7 replies 301 views

kimwp

I have discovered it is free to change the term of my mortgage so would like to use that to increase my monthly mortgage direct debit. 
 The question is, what can I do or point out (given that the mortgage appintment is on Friday) to make this as big as possible to reduce the total I pay in interest?

ZeroSum

Given the overpayment allowances are annual. Instead of overpaying, you could look at putting money into regular savers as often the rate will be higher than mortgage. HSBC/First Direct are paying 2.75%
Then pay off following year. (or after fix term when you are free to overpay as much as you want) 

If the fix is only 2 years, rate shouldn't be much & can maximise interest on savings, you shouldn't lose too much from not overpaying straight off. 

kimwp

So...apart from being careful with your spend (though they didn't actually ask what I spent on anything apart from council tax, utilities, travel and annual car expenses??)

If you have an overpayment reserve (where you have overpaid and can use that fund to skip payments), then removing it as an option improves the affordability.

@ZeroSum It was a five year fix at 2.39%. So only three regular savers beating that at the moment.

MovingForwards

Do not alter the mortgage term. If your circumstances change you are then stuck trying to pay this new big payment.

What you need to do is set up a standing order or make manual payments. That naturally shortens the term and reduces the overall interest, but also gives you the ability to stick to the direct debit payment only if anything happens.

Some lenders reduce the direct debit payment because of overpayments, that way your term stays the same. Each time the DD comes out, check to make sure it is the normal payment, of its lower then send the extra over to make it up to the normal full payment.

Have a play with this:
https://www.halifax.co.uk/mortgages/mortgage-calculator/overpayment-calculator.html

This one really goes into detail, just scroll down the page because of the advertising:

https://www.themoneycalculator.com/mortgages/calculators/mortgage-overpayment-calculator/#!/dealfinder/mortgages/

kimwp

Many thanks @MovingForwards, I appreciate that you are trying to help. My aim is to pay off the mortgage as quickly as possible with the least expense. The increase that I agreed to today (and that hopefully the underwriters will agree to), I can accommodate five (nearly six) times over with my current income and outgoings (and non-covid income and outgoings). Therefore each month reflecting my current financial picture stores up a further four to five months of the rise. I expect to pay off the mortgage by Oct 2021 - therefore I need my current "excess" to be maintained for just under three months out of the fourteen. 

In terms of overpayments, if I make further overpayments then I will incur penalties. I have created a spreadsheet which allows me to compare different combinations of overpayments both in magnitude and date paid, taking into account the penalty incurred for any overpayments exceeding the penalty free limit and the interest that would otherwise be earned from waterfalling the money through the highest available savings accounts. I will take a look at the links you sent as well.

Does this sound like a reasonable strategy?

kimwp

I personally wouldn't recommend the Halifax calculator over the one on this site @MovingForwards, as it has less functionality as you can't specify the month that you want to make a lump sump overpayment (as far as I can tell).

The Money calculator calculator allows you to vary the period of the regular saving which is a nice feature, but I couldn't see an option for a lump sum or varying the payments.

I'm happy with my spreadsheet, it's tracked the outstanding balance calculated by my mortgage provider to within a couple of pounds each month - thank you for sharing the links though, I do appreciate it.

kimwp

MovingForwards said:

Some lenders reduce the direct debit payment because of overpayments, that way your term stays the same. Each time the DD comes out, check to make sure it is the normal payment, of its lower then send the extra over to make it up to the normal full payment.

Sorry for another message @MovingForwards, but I don't think this is good advice in any circumstance.  The extra you send will count as an overpayment and result in another reduction in your direct debit. You could inadvertently use up a significant chunk of your overpayment allowance in making up the DD to the normal payment. Better to arrange with your lender that overpayments reduce the term surely?

george4064

kimwp said:

MovingForwards said:

Some lenders reduce the direct debit payment because of overpayments, that way your term stays the same. Each time the DD comes out, check to make sure it is the normal payment, of its lower then send the extra over to make it up to the normal full payment.

Sorry for another message @MovingForwards, but I don't think this is good advice in any circumstance.  The extra you send will count as an overpayment and result in another reduction in your direct debit. You could inadvertently use up a significant chunk of your overpayment allowance in making up the DD to the normal payment. Better to arrange with your lender that overpayments reduce the term surely?

Overpayments (OPs) either reduce the standard monthly repayment (including less interest per month) or reduces the term or your mortgage. By default lenders use OPs to reduce the standard monthly repayments, so if you want to reduce your mortgage term then you will need to contact your lender to discuss this.