What to do with mortgage over payment? 12 January 2022 at 10:17AM in Mortgage-free wannabe 2 replies 122 views

Thehamptons

Hello to you all.

I have been a fan Money Savings Expert and the forum for years and have had got great tips and advice. I had a very old account many many years ago but did not use it so decided to start a fresh from 2022 and start clearing debt and the biggest one is mortgages.

Yes mortgages! I used to work for a bank and when the tracker rates went silly I got a staff rate so half was charged BIK and the other not. I left the bank and rolled to a large variable rate of 4.5%. I have the rate fixed at 2.9% and there is about 16years on it.

Mortgage is less than 60% of the value of the property. By the way we cannot move banks. Well have not tried. We are going down the ivf route and need to get rid of some of this debt as soon as we can.

                       Balance outstanding   current repayments

Mortgage 1 152,181.27                              991.96

Mortgage 2 112,261.35                              731.75

Total             264442.62                            1723.71

We took 6months break due to covid and unsure if we had any money at the end of the week let alone the end of the month. The bank would not offer interest only at the time and as you know the bank always win so we have to start clearing it. Thankfully we are paying again to full payments the last 15months. No affect on credit rating.

We have an extra 100 per month and I cannot decide if we should pay to mortgage 1 or 2 or split 60/40.

Any suggestions would be welcome. I have the signed forms to fix for another 2years from Feb and I will post to the bank. Variable is 3.95% so even waiting to put a lump sum down is not an option based in the 3.95% rate.

We can over pay 10% of the repayments so if I had more I would pay down but was told that I need to call to set a fixed amount as if i just do a transfer during the month that is not expected I may be penalised.

Note we have a rental property and we have given the tenants notice to leave and that will in up in August but I cannot see them going without a fight. The rents have doubled and we did not increase it over the least 7years and it has comeback to bite us. They are going to find it difficult to find a place in their budget and they have been there 10years.  We will be selling to a home owner as well as we kept the rent to 900 instead of 1650 for a 2bed house. By the way 52% goes to the tax man from the rental income. The houses are in Ireland but the principle is the same.

Bought from the family when his parents died for  245k at the time of high house prices. Will be selling for 215 if lucky. The only people that won on this purchase was the tax man and the banks. We will be selling below the price we paid for it.  Not cheap so we will not be paying any cgt thankfully but we may have around 100k after the sale and paying the mortgage on it(tracker mortgage at 1.2%). That does depend on when they leave that is!! Could be a costly exercise going to court.

By the way the user name is not a surname but the place in the States. Thinking it is where everyone strives to go to .. Dont know why but it was the first name of many names I entered to set up an account. You do not realise there are so many members on the site.

Thehamptons

Since my last post a mortgage payment went through so the balance is now:

Balance outstanding   New Balance outstanding   current repayments

Mortgage 1 152,181.27      151189.31                          991.96

Mortgage 2 112,261.35       111529.60                        731.75

Total             264442.62       262718.91                     1723.71

We said we would start slow on the top ups and have to put away for emergency fund as well so that is why the 100 is the first top up we are trying.

We can overpay 172 across the two mortgages but we have to confirm over the phone and not do adhoc payments. Really trying to figure out what do do. We sent off the fixed rate forms so hopefully the new 2year fixed rate is in place for Feb. We are not charged to fix but will be penalised if we lodge too much in without permission.

I rang the bank and asked if we overpay can we request it goes off the capital and not the interest and the customer service agent said it makes not difference?? Also asked if we split the 60 40 would that save anything and she also said you will pay the same interest!! Sounds like a well informed customer service agent. I could be wrong but I am more confused after talking to the agent. Will do some calculations and see if there are any changes.

LadyGnome

Are both mortgages fixed on the same rate? In practice mortgage interest is effectively added into the loan balance and becomes capital. 
 So 1st Jan you owe £1000  
2nd Jan £10 interest - you now owe £1010
3rd Jan mortgage payment of £20 - you now owe £990

So you can't chose between paying interest or capital because they become the same thing.

If the two mortgages are at the same rate then I would be tempted to overpay the larger one as that is costing you more in interest day to day than the smaller one.