should i pay more on my mortgage than needed ?

182_blue

as title, im thinking of making regular overpayments (monthly), is this a good idea, would i be better making lump sum payments, my mortgage is with natwest and i pay £460 a month, was thinking of adding £100 on top ?
many thx
shaun

Joe_Bloggs

Welcome to the forum. What is your current mortgage rate? What rate can you get for your savings at present? Are you a higher rate tax payer ? Are you now on standard variable rate with the Natwest? It is probably better to have a few months salary in savings at competitive interest rates(Cash ISA perhaps) before overpaying on the mortgage. Research how much are you allowed to overpay each month/year without overpaymemt penalties.Also when do they take into account your overpayments, daily,monthly, or annualy.
J_B.

182_blue

hi, im on a variable rate nat west mortgage, but im on reduced interest at 5.29 %, i just rang them and they wont let me make regular overpayments ??, i can only make 2 lump sum payments of over £1000, im not a higher tax payer

mrcow

Hi Shaun,

I'm a great advocate for paying as much off your mortgage as you possibly can. Regular automatic overpayments are great, as IMO, they don't require as much discipline as saving up a lump sum and then repaying (also you save interest as you go along....providing that your interest is calculated on a daily basis and not annually.....get this checked out).

As Joe Bloggs has said, absolutely double check whether you are allowed to make overpayments without penalties, and if there are any limits to this.

Finally, to work out exactly how much money you'd be looking to save in interest alone (and I'll bet it's in the thousands!) check out this following simple mortgage calculator and have a play with the figures.

mrcow

Edit.....Just seen your latest post. Is this situation ongoing, or just for a limited period? Either way, maybe the best bet would be to save £600 every six months and then make the lump sum overpayment on a regular basis? (Sorry was this £1000 per year or 2 x lump payments of up to £1000 each per year?)

itgirlinuk

mrcow wrote:

I'm a great advocate for paying as much off your mortgage as you possibly can.

I would do the same. And I would recommend saving the monthly overpayments in a regular savings account at a higher interest rate and then on completion pay it into your mortgage.

Have you considered using the offset mortgage?

Joe_Bloggs

The Natwest have made the decision for you. If you want to make monthly overpayments then they will have come from monthly savings you built up previously and paid to Natwest probably only once a year. This begs the question what rate do you get for your savings at present. You will lose 20% of the interest paid on them as a basic rate tax payer without a tax shelter.

A savings rate 5% is easy to get (a net 4% to you paying tax) with instant access/monthly interest . Better deals are out there. Stick with the site and reap the benefits. Read Martins' Tips.
J_B.

182_blue

thx folks, looks like i can only make 2 over payments a year, unless i move mortgage, but im on 2 years reduced interest (at 5.29 %).
so im planning on making 2 payments of say £500 + a year, does this make sense ?, and will i be better of doing it this way

grumbler

182_blue wrote:

...so im planning on making 2 payments of say £500 + a year, does this make sense ?, and will i be better of doing it this way

I'd pay £25-£250 every month into regular saving account with Halifax (7%, 5.6% after tax) or HSBC (8%, 6.4% after tax, but must have current account with them). When this account matures in 12 months, you can use this lump sum to pay your mortgage. *As far as I understand*, it is O.K. for you to make one extra payment per year instead of two.

meanmachine_2

Am i right in thinking that the case for overpayments is even stronger if you're a higher rate tax payer? Presumably it's best to "spend" the money paying off the mortgage, is that right?

I'm personally amazed that everyone - particularly those who bought before 2000 - isn't furiously overpaying to cut down their mortgage terms.

I guess it's all a matter of balance. Some people only want to pay the minimum and enjoy their money in the here and now. But to my mind the sooner I could get rid of the horrible burden of a mortgage the better!

Does anyone have a list of lenders/policies that allow more than 10% overpayments per month?

grumbler

meanmachine wrote:

Am i right in thinking that the case for overpayments is even stronger if you're a higher rate tax payer? Presumably it's best to "spend" the money paying off the mortgage, is that right?

Absolutely! (for non-offset mortgages)

Does anyone have a list of lenders/policies that allow more than 10% overpayments per month?

AFAIK all mortgages besides discounted and fixed rate ones allow this.

182_blue

grumbler wrote:

I'd pay £25-£250 every month into regular saving account with Halifax (7%, 5.6% after tax) or HSBC (8%, 6.4% after tax, but must have current account with them). When this account matures in 12 months, you can use this lump sum to pay your mortgage. *As far as I understand*, it is O.K. for you to make one extra payment per year instead of two.

thats exactly what im doing (halifax saver), so i hope to pay 2 lumps of a year, will this reduce my payments ??, or just the length of my repayment ??, when will i see the benefit