Mortgage overpayments worthwhile even with fee?

Hyacinth22

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.  

getmore4less

Loads of missing information
Start with.

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

pjcox2005

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

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.

Hyacinth22

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

Nothing money shaming if you are asking about the best plan moving forward with your cash flow.

It about timing your overpayment.

pjcox2005

getmore4less said:

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.

TheMightyShowerHead

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.