Overpayment above the interest free amount questions (wanting to pay my mortgage off ASAP) 25 February at 7:44AM in Mortgage-free wannabe 5 replies 96 views

mobilechicane

Hi All, I'm in the very fortunate position to be able to over pay my mortgage due to a job change at work.

Backstory: I have no other loans or debts and I pay my credit card off in full every month, there is £32k left on my mortgage.
 
I have already made the maximum interest free overpayment of 10% this year so any further overpayments will be loaded at 3% by my mortgage provider (so £30 on an overpayment of £1000)

My current interest rate is 6.25%, am I going to save money or at least pay less overall by over paying even with the 3% penalty on overpayments ?

I have done some googling and I'm either phrasing the question wrong or looking in the wrong place as I've yet to find a definitive answer.

My mortgage provider obviously want me on their books as long as possible to increase the total I pay them and wont give me a definitive answer.

I'm not interested in putting the extra cash into savings or investments until after my mortgage is paid off.

Emmia

https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

If you put your mortgage balance, plus remaining term + interest and then your planned monthly overpayment in this will tell you how much interest you'll save, and how quickly the term will reduce. 

If the penalty is less than the interest, then you'll save money overall. 

This calculator also gives an idea of the effect of putting the same amount in savings (which I know you don't want to do)

mobilechicane

Whoops for got to say thanks in advance for any advice and I cant seem to edit the post yet.

Emmia

A £35,000 outstanding mortgage, at 6.25% with 5 years to go and an example £1,000 overpayment each month would save about £3,700 in interest. 

There's also a table showing the effect/costs with, or without the overpayment.

mobilechicane

 Hi Emmia, I did see that but I couldn't find a way to add a penalty interest rate to the overpayment amount, I'm assuming as my penalty rate is lower (3%) than my mortgage rate (6.25%) I would still save. 

It did however show me that I would save more money than if I saved at 4% which I missed last time so thank you for that 

Emmia

mobilechicane said:

 Hi Emmia, I did see that but I couldn't find a way to add a penalty interest rate to the overpayment amount, I'm assuming as my penalty rate is lower (3%) than my mortgage rate (6.25%) I would still save. 

It did however show me that I would save more money than if I saved at 4% which I missed last time so thank you for that 

I think you'd probably need to do your own spreadsheet to work out the figures precisely with that combination. 

Is the 3% added to your normal mortgage rate (so the penalty is really 9.25% on the additional payments) or is it a flat 3% on everything over and above the amount you are allowed to overpay?

Are you on a fix? Would it be better to hold the money until the fix is over (sticking with your current overpayments) and then clear a big chunk off at that point?

Is there any other early repayment charge you need to factor in? I know you're probably keen to clear it, but presumably not at a price that is more expensive than just making the overpayments you're allowed to?