Overpayments

Dannylufc

Hello
Any advice would be gratefully received.

I am coming to the end of a 5yr fixed mortgage at 1.89%. The balance of the mortgage is £190k. I have been though an independent broker, L&C and MSE Best Buys Mortgages and found another mortgage to start when the current fix ends. The new mortgage that I have booked out is fixed for 2yrs at 4.44%. 

For the last few years I have been making overpayments of £490 per month. I have some money put away in a savings account paying 3.5%.
My question is with regards to if I would be better off making a one of large lump sum overpayment while I am on the lower fix rate than continuing to pay the monthly overpayments at the new higher rate that I will be shortly moving onto.

So instead of continuing to make monthly £490 overpayments on the new mortgage at 4.44%, would I be better off overall, making a lump sum payment of 24 x £490 = £11,760 now while I am still on the 1.89% mortgage, so less of that lump sum payment gets swallowed up by interest? 

I hope that makes sense.
Many thanks for your time and for any advice offered.
Danny 

Zerforax

Would you be able to continue making a £490 overpayment when the rate jumps from 1.89% to 4.44%? We don't have the term of your mortgage so can't calculate. Assuming 25 years, your monthly repayment is jumping by £260 a month for example.

But yes, I think paying off ~£12k now rather than spreading over 24 months will save you money since the 4.44% interest is applying to a smaller amount.

Dannylufc

Thanks for your reply @Zerforax
Yes, I would be able to continue to paying the £490 overpayment on the new rate of £440. The term of the mortgage is 25yrs. 

Thanks for confirming that the making the one off lump sum overpayment would be financially beneficial compared with making the monthly payments.

As I will still be able to afford the £490 overpayments once I'm on the new higher rate mortgage my plan is to make the one off lump sum payment while I'm still on the cheaper low fix rate. Then save the £490 monthly payments that I would have ordinarily made and put this money into savings with a view to then making another lump sum overpayment after the 2yr fix rate at 4.4% comes to end when hopefully mortgage rates have dropped a bit lower than what they are now. 

Cheers

Zerforax

Dannylufc said:

Thanks for your reply @Zerforax
Yes, I would be able to continue to paying the £490 overpayment on the new rate of £440. The term of the mortgage is 25yrs. 

Thanks for confirming that the making the one off lump sum overpayment would be financially beneficial compared with making the monthly payments.

As I will still be able to afford the £490 overpayments once I'm on the new higher rate mortgage my plan is to make the one off lump sum payment while I'm still on the cheaper low fix rate. Then save the £490 monthly payments that I would have ordinarily made and put this money into savings with a view to then making another lump sum overpayment after the 2yr fix rate at 4.4% comes to end when hopefully mortgage rates have dropped a bit lower than what they are now. 

Cheers

Have you checked how much you are able to overpay without penalty? Often it is 10% of the capital amount per calendar year.

Just make sure that paying off ~£12k doesn't trigger a charge. The other way to get around this is to make the overpayment effectively between the old deal expiring and the new deal starting - when you have no overpayment restriction.

Could you not continue to make the £490 overpayment monthly if you are still saving it after making the large lump sum? Or is that your rainy day fund?