What's the point of paying down mortgage?

housebuyer143

Beetroot_24 said:

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.

Everyone's situation is different is all I am saying.. Sometimes there is no reason to rush to pay the mortgage off and that's okay. 

As long as you can afford the payments as they increase and you have adequate savings to get you through then there is no wrong path.

Some people buy their houses interest only and never plan to pay it off, instead choosing to downsize at the the of the term. As long as you are Mortgage free by retirement then that's all that matters. 

dander

I think the difference comes in the people who were overpaying anyway for all the good long term reasons mentioned above and the people who are saying they'll do it now as a response to the rate rises. Personally if I was worried about rate rises and the uncertainty in the cost of living, I'd be piling all the extra into savings rather than mortgage overpayments because that's going to give you a backup against future financial stress wherever it comes from. It will also be a question of your personal priorities and where that cash is coming from. For me, my priority is my pension savings and my spare cash goes to "overpaying" there with an aim of a comfortable retirement. 

Choirgrl

tony3619 said:

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?

Those few years off the term could translate into a significant saving in total interest paid. For some people it could also mean being able to retire earlier, or be free of mortgage payments before another expense kicks in ( eg kids at Uni). As others have said, whether overpayment makes sense is going to be different for different people. If being able to afford the monthly payment in the future is a worry, then putting it in a savings account might give greater peace of mind.

fewcloudy

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!😬

You are questioning the wisdom of over-paying your mortgage during this particular crisis.

When folks talk about overpaying on here, they are not talking about it as a measure to take during a time of crisis.  It is more common to see it described as a useful thing to do, for the reasons you state.  But it is a luxury and also a sacrifice to be able to do so.

It's not a step to take if you are facing a sudden large increase in monthly payments. In this case you ride it out and minimise unnecessary expenses etc. but you knew that.  Are you sure you're a novice at this?!

tony3619

fewcloudy said:

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!😬

You are questioning the wisdom of over-paying your mortgage during this particular crisis.

When folks talk about overpaying on here, they are not talking about it as a measure to take during a time of crisis.  It is more common to see it described as a useful thing to do, for the reasons you state.  But it is a luxury and also a sacrifice to be able to do so.

It's not a step to take if you are facing a sudden large increase in monthly payments. In this case you ride it out and minimise unnecessary expenses etc. but you knew that.  Are you sure you're a novice at this?!

I'm slowly learning! 😁

tony3619

fewcloudy said:

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!😬

You are questioning the wisdom of over-paying your mortgage during this particular crisis.

When folks talk about overpaying on here, they are not talking about it as a measure to take during a time of crisis.  It is more common to see it described as a useful thing to do, for the reasons you state.  But it is a luxury and also a sacrifice to be able to do so.

It's not a step to take if you are facing a sudden large increase in monthly payments. In this case you ride it out and minimise unnecessary expenses etc. but you knew that.  Are you sure you're a novice at this?!

I'm slowly learning! 😁

Noneforit999

Overpaying doesn’t meant you need to spend every penny of disposable income you have to pay down your mortgage so you can retire at 35. That is a pipe dream.

People usually overpay by an amount they can comfortably afford but also have savings too. We have X amount per month we save with, half overpays the mortgage and half goes into savings. 

This is on top of the 6 months income we have in case either of us lose our jobs. 

Everyone has different circumstances and different disposable incomes each month. Ours depends on how much overtime I do, some months we can overpay the mortgage by £100, others £300.

I agree overpaying the mortgage whilst you have zero in savings is not a good idea but if you have savings also and are splitting extra income between this and overpaying, I don’t see a downside. 

DreamingofGreece

Personally, over paying the mortgage over a number of years meant that when the opportunity to apply for voluntary redundancy from a job I didn't like and commute I hated arose, I was able to take it without a second thought. We were safe in the knowledge that it didn't matter if I didn't find another job straight away  as the voluntary redundancy payment more than covered the outstanding mortgage, plus bills, for a good few months. I guess what I'm trying to say is that it gave us options we wouldn't have otherwise had.

However, we haven't overpaid at the expense of everything else. We have always made sufficient pension contributions and haven't scrimped on things we enjoy such as overseas holidays, eating out, theatre trips etc. Overpaying the mortgage was always balanced alongside living our lives. 

ElwoodBlues

The sooner you pay money off the mortgage the sooner the lender stops adding interest to that bit of the loan. Extreme example - if you pay back the full amount and settle the mortgage today, there obviously won't be any more interest to pay. On the other hand, if you went the other way and switched to interest only, you'll be paying interest on the whole balance forever. If you stopped paying the io monthly payments (and the lender just sat back and let you) then the interest would keep compounding and you'd quickly owe a lot more money (and compounding is exponential with interest rates).

Unless savings rates exceed your mortgage rate then you're better off putting spare money towards your mortgage. At present, if you're on a good fixed rate, it's quite possible to earn more on savings, but it's probably a small amount, unless you've got massive savings.

A lot of mortgage companies give you the choice of how each overpayment affects your mortgage - either reduce the term, reduce the standard monthly repayment, or neither. The latter option gives you the flexibility to come back later and choose between either if the first two.

My lender automatically recalcules the monthly repayment to preserve the term after an overpayment of £1000 or higher. The workaround is to pay off multiple amounts of £999!

Lewis7498

RedFraggle said:

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

Can I ask doesn’t the LTV get capped at 60% so if you’re at 22% for example you get the same offers if you were at 55-60%?