How much should I overpay, if at all?

redundantmortgage

I looked on course to make the maximum overpayments before the end of my current mortgage deal in July 2022 and then use my savings to pay off the remaining balance once the deal was finished. Then I got made redundant. I've since got a new job but it's a temporary one.

My remaining balance is £60,898

Me and my wife have to pay £7,728 each between now and the end of our deal which would leave us with a remaining balance of £46,790 if we were to make no overpayments.

We can overpay by £30,115 between now and the end of the current deal.

I currently have £31,194 in the bank and will have made £10,780 after deductions by the time my temporary job finishes.

The unknown is when I'm going to get a job once my temporary one finishes so part of me wants to hold onto the money I have but then I know it's going to cost me more interest in the long run so think I should at least put some of my money to overpayment. The question is how much?

MFWannabe

What is the interest rate on your mortgage and how long is left on the term? 
What’s the interest rate in your savings? 
On the face of it with what you’ve currently said I’d be inclined to not overpay until you have a more secure permanent position. Leave your savings where they are In case of emergency 

steampowered

Sorry to hear about the redundancy. Personally, I would stop making overpayments completely.

With mortgage rates at record lows, assuming you are on a competitive mortgage, the amount of interest you will save by making overpayments is tiny. And a lot less than the interest you would end up paying if you had to take out a loan to tide things over.

You would hope to find another job quickly, but you cannot guarantee that, and there is no guarantee your next job will be secure. You can always catch-up with your overpayments once you find another stable job. 

princeofpounds

Yes keep the liquidity until you are back in steady employment. Hopefully that won't be too long, but concentrating on that will probably be far more productive than worrying about small amounts of interest.

I don't know what your mortgage rate is, but the real (i.e. inflation-adjusted) rate of interest on it is probably teeny tiny. There is no great value to making overpayments unless you have genuinely surplus capital.

steve866

What is your interest rate? Is your wife employed?

redundantmortgage

Thank you everyone. 

My mortgage interest is 1.69% and my savings are in premium bonds. As things stand my actual mortgage ends in March 2027.

My wife works full time but she doesn't make overpayments and would struggle to pay the mortgage herself on her income.

I've calculated that if I overpay the rest of this years allowance today and all of next years allowance on July 1st then it would save me £630 in interest on this deal compared to if I didn't overpay at all. I wouldn't do something that extreme though so if I did make any overpayments the saving would be less than that. 

RelievedSheff

So not really worth it in the scheme of things. Keep hold of the money until you find more secure employment.

Rambosmum

Keep hold of your savings until in a more secure job then overpay as much as you can at that point. 

moneysavinghero

If you have over £16,000 of savings you will not be able to claim unemployment benefits. So may be worth while overpaying by £25,000 to get you down below the 16k threshold so that you can claim some benefits. Better still get your savings to below £6,000 so you will get full benefits (it's reduced if you have between 6k and 16k savings).

redundantmortgage

moneysavinghero said:

If you have over £16,000 of savings you will not be able to claim unemployment benefits. So may be worth while overpaying by £25,000 to get you down below the 16k threshold so that you can claim some benefits. Better still get your savings to below £6,000 so you will get full benefits (it's reduced if you have between 6k and 16k savings).

I could claim JSA when I was unemployed and savings has no effect on that. I wouldn't be able to claim the benefits where savings are factored in because my wife works full time.

I don't know whether this makes a difference but what I didn't mention is that if I did overpay it would go in an overpayment reserve which I can use if I need the money later on. I'm not sure if dipping into the overpayment reserve is as easy as they make it out to be though.

Another thing I didn't mention is that as the mortgage term doesn't reduce the more I overpay now the less I'd need to pay each month beyond the end of my current deal. Could be as little as £150 each a month if I overpay by the maximum amount.