Queston about overpayments

bmthmark

I'm trying to pay my mortgage off asap. I have a question which I hope you can help with.

My HSBC fixed rate is up in August 21, so I can get a new fixed rate end May.

I've been overpaying every month £400. 

Would it be better if I add that £400 to the repayments each month and do no overpayment? or continue as I am and carry on doing the extra £400?

I can't see any advantages of adding it to my fixed repayment amount. Or am i missing something?

My LTV is approx 45% so I should be able to get a fairly decent fixed rate.

FtbDreaming

I don’t think it will make any difference either way. You’ll still be paying the same. By not committing to the higher direct debit you’re keeping a bit of flexibility for life to happen. Hopefully your ne wen fix will be at a Lower interest rate which means if you keep payments the same + £400 a month you’ll be paying off even more capital each month.

Good luck anyway! X

bmthmark

FtbDreaming said:

I don’t think it will make any difference either way. You’ll still be paying the same. By not committing to the higher direct debit you’re keeping a bit of flexibility for life to happen. Hopefully your ne wen fix will be at a Lower interest rate which means if you keep payments the same + £400 a month you’ll be paying off even more capital each month.

Good luck anyway! X

Thanks for your comment. That's what I was thinking, I don't really want to commit to paying that £400 every month, just incase my job situation changes. But I still have the flexibility of manually making the overpayment.

pinknsparkly

You don't say how large your mortgage is or how long a fixed term mortgage you plan to take out, but will paying £400/month overpayment in the last year of your new fixed term mortgage cause you to exceed the 10% overpayment limit (or whatever the limit is for your mortgage before you get charged an early repayment fee)? If not then I'd do as you plan and keep your repayments as they are with a £400 monthly overpayment on top as it gives you the most flexibility. If it will make you exceed your annual overpayment limit then I'd look at reducing the length of the new mortgage such that the monthly payments increase just enough to allow you to continue making the same total repayments without paying any early repayment charges.

bmthmark

pinknsparkly said:

You don't say how large your mortgage is or how long a fixed term mortgage you plan to take out, but will paying £400/month overpayment in the last year of your new fixed term mortgage cause you to exceed the 10% overpayment limit (or whatever the limit is for your mortgage before you get charged an early repayment fee)? If not then I'd do as you plan and keep your repayments as they are with a £400 monthly overpayment on top as it gives you the most flexibility. If it will make you exceed your annual overpayment limit then I'd look at reducing the length of the new mortgage such that the monthly payments increase just enough to allow you to continue making the same total repayments without paying any early repayment charges.

The mortgage is for £175,000 (property worth approx £400,000). I currently have 18 years left of mortgage. But ideally I want to get this down to 10 years, which I think is possible. Over the last year I have been overpaying £400 a month which is fine.
I'm planning to take out a 5 year fix.
Its a good point regarding the 10% overpayment fee. I think I should be ok, when I come to look at it again in 5 years, it might be different

nyermen

And remember its not a rolling 10%, instead it's for a set period each year.  eg. Mine started Sept 2019, the 10% was from there for 12 months, then 10% of new outstanding principal in sept 2020 for 12 months, etc.
(sorry if this is known already, prefer to check).

I'm doing the same thing, putting extra in each month at the moment, but keeping the flexibility just in case.  I would say, it's worth having a backup of X months mortgage payments just in case of job loss (In my case I've managed to squirrel away 12 months).  I don't believe the overpayments can offset against future contractual repayments in event of struggles.

bmthmark

nyermen said:

And remember its not a rolling 10%, instead it's for a set period each year.  eg. Mine started Sept 2019, the 10% was from there for 12 months, then 10% of new outstanding principal in sept 2020 for 12 months, etc.
(sorry if this is known already, prefer to check).

I'm doing the same thing, putting extra in each month at the moment, but keeping the flexibility just in case.  I would say, it's worth having a backup of X months mortgage payments just in case of job loss (In my case I've managed to squirrel away 12 months).  I don't believe the overpayments can offset against future contractual repayments in event of struggles.

Sorry Idon't understand what you mean with regards to its not a rolling 10%. Am I allowed to pay 10% of the outstanding balance for the year? and then the following year its 10% of whatever the balance is at that time. I might be completely wrong with my thinking. 

Mortgage_Minimiser

Please check what you can pay via your documentation or with your provider.  10% of what, is it outstanding balance or the original loan. Mine is the original loan (even though I have remortgaged since the original loan. I am with Nationwide), so my 10% remains the same - £24,375 even though my outstanding is 158,300. A lot are 10% of the outstanding loan, hence the 10% decreases each year. Hope that makes sense? 
MM
x

bmthmark

Mortgage_Minimiser said:

Please check what you can pay via your documentation or with your provider.  10% of what, is it outstanding balance or the original loan. Mine is the original loan (even though I have remortgaged since the original loan. I am with Nationwide), so my 10% remains the same - £24,375 even though my outstanding is 158,300. A lot are 10% of the outstanding loan, hence the 10% decreases each year. Hope that makes sense? 
MM
x

Thanks, yes that makes sense. I will look up the documentation. Hopefully its 10% of the original loan. But even if its the outstanding amount it should be ok for a while.
Thanks again

bmthmark

Just found the info about the overpayment, it says:
'The allowance is equivalent to 10% of the outstanding balance of your mortgage calculated on each anniversary of the start of your fixed rate period. Anything over this will incur an early repayment charge.'
So currently I can overpay a max of approx £17,500. I'm no way near that just yet. I think I overpayed about £4,800 last year.
But i'm pleased this was mentioned as I was thinking about paying a lump sum off in a couple of years time of approx £10k. So I will need to bear this in mind.

jimjames

Mortgage_Minimiser said:

Please check what you can pay via your documentation or with your provider.  10% of what, is it outstanding balance or the original loan. Mine is the original loan (even though I have remortgaged since the original loan. I am with Nationwide), so my 10% remains the same - £24,375 even though my outstanding is 158,300. A lot are 10% of the outstanding loan, hence the 10% decreases each year. Hope that makes sense? 
MM
x

It's a really good feature of the Nationwide mortgage, with ours it means we're now in the position where we can virtually clear some of the mortgages we have with the 10% of original loan being overpaid each year.