Overpay piecemeal or save and overpay in a lump?

housebuyer143

Altior said:

It's a bit of a drum that I beat on here, but shortening the term brings no tangible difference to your life. Would you for example put money in an account now that doubled your money, but didn't pay out for say twenty years. Probably not. Cash has more utility for you now, than at the end of your mortgage term. 

Essentially, the time value of money is very unconsidered on these boards in my humble opinion. 

I can see how the 'badge' of being mortgage free asap can be very seductive. But for me it's not financially logical, unless at least you can't beat the interest on the mortgage liability with any cash rate. 

This I whole heartedly agree with. When you are older (not care home old) you actually have less need of money and spend less this is proven. Inflation also increases your wages and makes the loan smaller in relation to earnings. 

I was also sucked into the whole being mortgage free and so at 30 paid it off and for the next 4 years you know what I did, saved loads of money as I nothing to spend it on and eventually moved to a larger house with a mortgage. Now I chose not to over pay, and have the longest term possible. I enjoy the money I have now and invest it in different ways that do not involve it being tied up in my house while I'm in my 30s. You are right that is a lure to say "I'm mortgage free", but in reality it's not something you need to be until you are old and jobless.

dancing_star

housebuyer143 said:

You are right that is a lure to say "I'm mortgage free", but in reality it's not something you need to be until you are old and jobless.

I'll be pushing 70 when my mortgage is paid off at the current rate. So if I can shorten that by a couple of years and retire earlier, then yes I'll do it. I won't bother for say four months off the term, but a couple of years less at work, yes please.

housebuyer143

dancing_star said:

housebuyer143 said:

You are right that is a lure to say "I'm mortgage free", but in reality it's not something you need to be until you are old and jobless.

I'll be pushing 70 when my mortgage is paid off at the current rate. So if I can shorten that by a couple of years and retire earlier, then yes I'll do it. I won't bother for say four months off the term, but a couple of years less at work, yes please.

Most definitely in your case you should pay it off, as I agree by retirement you can't really afford to have a mortgage on going. 
My plan is probably to downsize at old age rather than pay off my mortgage in full, but who knows 🤷‍♂️ 

Beetroot_24

Altior said:

Your thinking is still not correct in my opinion. 

You'll have a big fat lump sum, which has been exponentially growing. Outside of the mortgage. So, whilst you won't have to pay off the mortgage with it, you could. Or you could even be earning enough yield by then to be paying the repayments with interest being earned from the capital. You should have a 'break even' point, for the want of a better term, where your capital outside of the mortgage supersedes the liability of the mortgage.

My only caveat would be that it requires some discipline, as it's a bit like a pension, once it has been paid in, an overpayment can't usually be accessed. So if an individual has poor discipline, and can't prevent themselves from dipping into savings to spend on 'luxuries', they would be better off overpaying (there is a sort of halfway house possibility of a bond ladder). 

I suppose it depends on your circumstances. 

I'm 39, and we've been reducing our term so the redemption date is January 2027. It reduces by 2 months every 3 months. It will be paid off by the end of December 2024. I'll be 41 (my husband will be 40) and we'll have an extra £1300 a month to blow, save or invest. If we'd have reduced the payment over years, by the end of next year we'd have 20 years left and around £50k left to pay and be facing massive interest rate hikes.

It doesn't have to make sense to you, but I know which position I'd rather be in.