What's the point of paying down mortgage?

tony3619

Ok I understand that you reduce the debt and save on interest etc, but In The current climate I dont understand why you would pay 5000-10000 off your mortgage to help in the short term. 

If the overpayments are reducing the term on which your paying it back then the payments stay the same (on a fixed rate) unless you opt to reduce the monthly payments over the same term instead. 

so the only gain is paying off the debt abit earlier. How does this help you if your struggling with the increased monthly payments from 2% to 6%? Are you not better off keeping the money towards the monthly payments? 

I'm a novice so could be totally wrong so apologies if I am!😬

Soot2006

The way I see it, every pound I overpay is a pound I won't ever have to pay interest on again.

Provided my spare pound can't return a better interest rate in a savings account than it would pay off my mortgage, I say the mortgage is a good place for it.

The key is in the word "SPARE" pound. Not a pound I might need to help over the cost of living.

But if you have a low interest mortgage then it makes total sense to pay off as much of that debt as you can before the product ends, or your debt will end up on a higher interest rate, meaning you now owe more.

RedFraggle

It also pays off additional capital so when remortgaging it gives you a better loan to value percentage which can unlock better interest rates. 

BikingBud

Here's an example of the benefit of overpaying 10% per annum and reducing the term:



Reduce the term by 14 years and save £261k

tony3619

BikingBud said:

Here's an example of the benefit of overpaying 10% per annum and reducing the term:



Reduce the term by 14 years and save £261k

While that's amazing. If your mortgage is 29 years and your thinking about payments increasing 300-400 per month and may struggle in the longer term if higher rates persist what does it matter whether you have 29 years or 15 years left? Would it not be better to keep the funds to be able to pay the monthly rate longer rather than lower the length of the mortgage term and risk losing your home if you suddenly need the funds back. 

Obviously if rates come down after 3 years and it looks like they are going to stabilise that's a different story.

Hope what I'm saying makes sense. 

housebuyer143

tony3619 said:

Ok I understand that you reduce the debt and save on interest etc, but In The current climate I dont understand why you would pay 5000-10000 off your mortgage to help in the short term. 

If the overpayments are reducing the term on which your paying it back then the payments stay the same (on a fixed rate) unless you opt to reduce the monthly payments over the same term instead. 

so the only gain is paying off the debt abit earlier. How does this help you if your struggling with the increased monthly payments from 2% to 6%? Are you not better off keeping the money towards the monthly payments? 

I'm a novice so could be totally wrong so apologies if I am!😬

Most lenders give you the choice so if you make an overpayment you can either choose to to reduce the term or reduce your payments.

I recently paid off half my loan and opted to reduce the payments so they reduce by almost half.

silvercar

The have your cake and eat it option comes by having an offset mortgage, so the monthly payments can be reduced (by the size of the offset savings), but your money is there if you need it.

housebuyer143

silvercar said:

The have your cake and eat it option comes by having an offset mortgage, so the monthly payments can be reduced (by the size of the offset savings), but your money is there if you need it.

It does come with higher interest rates for the privilege though. Considered it for a short time but now the savings rates are getting good and the fees associated with it, we didn't work out that much better off on the offset. 
If you can offset most the loan then it's probably a no brainer but otherwise not always the best option 

Beetroot_24

Well the benefit to me is that I will be mortgage free at 40 rather than 61. 

tony3619

Beetroot_24 said:

Well the benefit to me is that I will be mortgage free at 40 rather than 61. 

That's fair enough, providing you don't lose your job or have a change in circumstances where you wish to had any overpayment funds back. 

MFWannabe

tony3619 said:

Beetroot_24 said:

Well the benefit to me is that I will be mortgage free at 40 rather than 61. 

That's fair enough, providing you don't lose your job or have a change in circumstances where you wish to had any overpayment funds back. 

The point is you overpay your mortgage by what you can comfortably afford to do and also save 

You don’t spend every single spare penny overpay The mortgage