We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

Mortgage overpayments worthwhile even with fee?

Options
Hi, I have around £75k and 10 years left on my mortgage, paying around £650 a month.  I want to reduce the term of it as much as possible and as quickly as possible.
I have already overpaid the 10% allowed this year without incurring fees, but I am interested in paying more overpayments, even though there is a 3% fee attached to this.
As an experiment I made an overpayment of £100.  They charged me £3 for this but informed me that my term was reduced by a month.  I imagine this is just due to rounding and in fact it reduced my term by just a few days - would that be right?   
Interested in views as to whether it is daft or not to make overpayments even when there's a 3% fee.  

Comments

  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Loads of missing information
    Start with.

    Mortgage rate
    ERC  10% reset date.
    ERC % reset dates from 3% to 0%

  • pjcox2005
    pjcox2005 Posts: 1,018 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    Simple view - Only way it would be a benefit is perhaps if your mortgage interest rate is more than 4% which for most people is unlikely. 

    If not, you'd just be better putting overpayments in a savings account  (which offer protection) and then just overpay as a lump sum when no overpayment charge applies.




    A more complex approach would be to consider whether overpayments are correct or whether pension contributions, other investments etc would be better.
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    pjcox2005 said:
    Simple view - Only way it would be a benefit is perhaps if your mortgage interest rate is more than 4% which for most people is unlikely. 

    .
    Be interesting to see your calculations that can conclude that.
  • I don't want to be "money-shamed" by anyone, but there is also a convenience factor in play for me.  I don't generally make much of an effort with savings accounts e.g. shopping around to get the best deals etc. whereas I find it very easy and convenient just to put any cash I can spare into my mortgage.  I guess ultimately that's where it comes down to personal preference.
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Nothing money shaming if you are asking about the best plan moving forward with your cash flow.

    It about timing your overpayment.
  • pjcox2005
    pjcox2005 Posts: 1,018 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    pjcox2005 said:
    Simple view - Only way it would be a benefit is perhaps if your mortgage interest rate is more than 4% which for most people is unlikely. 

    .
    Be interesting to see your calculations that can conclude that.

    In fairness it was very simplistic (i.e. 3% ERC plus a potential interest return of 1% from a savings account) as does ignore compound interest to a degree. The main point is that if mortgage rate is low, then why pay to make an overpayment (as immediate saving would be less than the charge) when you could store those overpayments in a savings account and then make an immediate overpayment as soon as the new allowance is available and repeat.
  • One of my mortgages is worth Nationwide. They allowed me to reduce the term of my mortgage, this put my monthly payments from £531 a month to £670 a month. This reduced my term by around 10 years.
    I didn't pay any early repayment charge and I retained the ability to make 10% overpayments. They did re-check the affordability aspects but made no credit search.

    So it might be worth speaking to your lender and seeing if they will allow you to do something similar. 
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350.7K Banking & Borrowing
  • 253K Reduce Debt & Boost Income
  • 453.4K Spending & Discounts
  • 243.7K Work, Benefits & Business
  • 598.5K Mortgages, Homes & Bills
  • 176.8K Life & Family
  • 256.9K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.