What's the point of paying down mortgage?

tony3619

MFWannabe said:

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

MFWannabe said:

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

These days is there such a thing as comfortably afford? 

sidneyvic

In simple terms...
Total repayment of £300 of which £100.0 is interest and £200.0 is capital.
If you overpay by an additional £100 you are in effect paying an 50% extra off your mortgage per month.
But there is also a compounding effect as in the second month you have a £100.00 less capital outstanding on which to have to pay interest thus not only paying a further £100.00 off but also saving the interest and it has a nice snowball effect, the more interest you save, the more of you payment comes straight off the capital.
It is surprising how even a seemly small overpayment can make a big difference. 

Beetroot_24

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. 

I haven't actually worked since buying the house. I've had kids and been to uni twice in the last 13 years, but we've only ever been on one income. No tax credits.

We have savings, enough for a year's worth of payments (at the current amount we pay including overpayment) and bills if my husband was to lose his job. Because our balance is much lower as a result of the overpayments, if we had to extend the term to 27 years taking to 65, our payment would be £141 at the current rate, £250ish at 6%.

We borrowed an extra £25k towards a two storey extension 5 years ago, or we'd be nearly mortgage free already. Got two years left.

Another way I have benefitted is that I'm not vulnerable by the interest rate rises. We've been paying the equivalent of of what we'd be paying if we'd have been on 22%, but obviously knocking off the capital, not a shed load of interest.

If I'd have been paying the same amount on car finance every month to impress people with a shiny new car every 3 years, would you question if I'd regret those payments I'd made? So why question if I'd regret mortgage overpayments? Overpaying has stopped me wasting money.

tony3619

Beetroot_24 said:

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. 

I haven't actually worked since buying the house. I've had kids and been to uni twice in the last 13 years, but we've only ever been on one income. No tax credits.

We have savings, enough for a year's worth of payments (at the current amount we pay including overpayment) and bills if my husband was to lose his job. Because our balance is much lower as a result of the overpayments, if we had to extend the term to 27 years taking to 65, our payment would be £141 at the current rate, £250ish at 6%.

We borrowed an extra £25k towards a two storey extension 5 years ago, or we'd be nearly mortgage free already. Got two years left.

Another way I have benefitted is that I'm not vulnerable by the interest rate rises. We've been paying the equivalent of of what we'd be paying if we'd have been on 22%, but obviously knocking off the capital, not a shed load of interest.

If I'd have been paying the same amount on car finance every month to impress people with a shiny new car every 3 years, would you question if I'd regret those payments I'd made? So why question if I'd regret mortgage overpayments? Overpaying has stopped me wasting money.

I'm not questioning people that have paid down Their mortgages upto this point. I'm questioning whether making a lump sum now is worth it compared to keeping the savings towards ever growing higher rates. Sorry if I didn't make that clear.

I was looking at paying 4000-6000 off my 77000 mortgage and going by online calculators it made little difference to the monthly payments and only took a few years off the total mortgage term. 

I totally understand people paying off extra overall. Im talking more in the short term of 2-3 years. It seems safer to keep the cash and ride out 7-9% interest rates and hopefully overpay when they come down to 4-5?

housebuyer143

Beetroot_24 said:

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

I was mortgage free at 29... It was overrated. 

 Now paying a mortgage again and living in a nicer house. Now rates are going up there is sense to paying it down but when rates were so low it was like very cheap money having a mortgage - best loan you could get so made sense to keep it and invest the money elsewhere to get better returns. 

It's all about attitude to risk I suppose. 

MFWannabe

tony3619 said:

MFWannabe said:

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

MFWannabe said:

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

These days is there such a thing as comfortably afford? 

Everyone’s circumstances are different and the answer to this is relevant to each individuals circumstances 

Beetroot_24

housebuyer143 said:

Beetroot_24 said:

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

I was mortgage free at 29... It was overrated. 

 Now paying a mortgage again and living in a nicer house. Now rates are going up there is sense to paying it down but when rates were so low it was like very cheap money having a mortgage - best loan you could get so made sense to keep it and invest the money elsewhere to get better returns. 

It's all about attitude to risk I suppose. 

I have a 4 bedroom house in a sought after area with excellent schools, amenities, independent shops and bars, and great transport links, I don't need a better house tbh. If being mortgage free was my sole aim I would moved to a cheaper area, not gone on holidays (we've taken the kids to 24 countries and 20 US states before covid hit), or got a job years ago.

We have shares. I'm not really risk averse, but interest rates were 5.odd % when we bought, so I knew they wouldn't stay low forever. We just carried on paying what we'd have been paying if we were renting. 

When it's paid off we'll have the mortgage money plus my wage to invest without any debt.

BikingBud

tony3619 said:

Beetroot_24 said:

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. 

I haven't actually worked since buying the house. I've had kids and been to uni twice in the last 13 years, but we've only ever been on one income. No tax credits.

We have savings, enough for a year's worth of payments (at the current amount we pay including overpayment) and bills if my husband was to lose his job. Because our balance is much lower as a result of the overpayments, if we had to extend the term to 27 years taking to 65, our payment would be £141 at the current rate, £250ish at 6%.

We borrowed an extra £25k towards a two storey extension 5 years ago, or we'd be nearly mortgage free already. Got two years left.

Another way I have benefitted is that I'm not vulnerable by the interest rate rises. We've been paying the equivalent of of what we'd be paying if we'd have been on 22%, but obviously knocking off the capital, not a shed load of interest.

If I'd have been paying the same amount on car finance every month to impress people with a shiny new car every 3 years, would you question if I'd regret those payments I'd made? So why question if I'd regret mortgage overpayments? Overpaying has stopped me wasting money.

I'm not questioning people that have paid down Their mortgages upto this point. I'm questioning whether making a lump sum now is worth it compared to keeping the savings towards ever growing higher rates. Sorry if I didn't make that clear.

I was looking at paying 4000-6000 off my 77000 mortgage and going by online calculators it made little difference to the monthly payments and only took a few years off the total mortgage term. 

I totally understand people paying off extra overall. Im talking more in the short term of 2-3 years. It seems safer to keep the cash and ride out 7-9% interest rates and hopefully overpay when they come down to 4-5?

Based upon £70k over 10 years first 5 @3.5 % then going up to 5.5% you can reduce the term by nearly 25% and the interest by 35% by paying £6k in year 1 and £4k in year 2 and 3.



You could finesse this with different rates and compare with best savings rates, as well ensuring you cover any income tax liability but I know I am happier focussing on being debt free, as many on the MFW board are. 

At that point you get freedom of choice to work, or stop. That, to me, is wealth.

theoretica

If you can put the money you might use for overpayment into a savings account which has an interest rate not too far below what you are paying on your mortgage you probably gain maximum flexibility (unless you have a flexible mortgage and don't need this).  But you need the self discipline not to have that money get spent on less important things.  Otherwise keeping your term the same, but reducing payments is likely to give the most flexibility - you can pay the lower payment if you need to, or overpay by paying the higher payment if you can.

But I think you have a point - mortgage overpayment is a long term gain and sometimes the short term needs to have priority - though hopefully with an eye to the long term too.

dottydoo212

tony3619 said:

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. 

I think it's also important to remember with most lenders whatever you overpay can be used to cover future mortgage payments so theoretically if the rates increased and you struggled to make the monthly payments you could draw money from the overpayments made previously, provided it's agreed with your lender.