Overpaying yearly vs monthly

martyp

Hi all,

I have been trying to overpay my mortgage as much as I can whilst on a 1.49% fix for another 4 years.
The balance is only £27k with a £136 monthly repayment but 50% shared ownership so hoping to get on to the other half as soon as I can.
Basically the mortgage provider indicates the maximum annual overpayment is £3969. I'm now overpaying by £300 a month so a total of £3600 a year (really pushing it financially!)
I have some savings so considered just putting £3969 in at the start of each year instead of the monthly payment. Yet when I used the overpayment calculator it says it'll take 2 months longer to pay it off and cost more interest despite paying £369 more per year.
Yet if you google overpaying monthly vs yearly it suggests yearly is better?
So £300 a month seems better than £3969 annually for paying off sooner and saving on interest?

simon_or

With a 1.5% mortgage, if you're aiming to save/earn interest by overpaying £3600 a year (or £300/month), you would be much better off by paying into a regular savings account (Firstdirect has a 7% one, Skipton has 7.5%) or even something like Barclays 5% rainy day or even a 3.8% Chip easy access saver.

When you come to the end of your fix in a few years, you can use these savings to overpay or pay off the mortgage.

martyp

Good thinking, thanks. I already pay into a few high interest savings accounts. I think it was mainly so I would have the money available to me if I needed it but did wonder about whether it was better utilising the high savings interest rates whilst the mortgage interest was comparatively lower. I think I was just mainly fearing the interest rates when my fix ends but even 5% wouldn't be a huge amount more interest on £27k per month than 1.5%

Typhoon2000

Paying the annual overpayment in one go at the start of month 1 is better than spreading it over the first 12 months. But spreading over the first 12 months is better than paying it all in one payment at the end of month 12.

martyp

Thanks, that's how I thought it would be as the capital would be reduced at the start of the year to accrue less interest on it, I'm thinking maybe the mortgage overpayment calculators consider the payment at the end of the year possibly?

BikingBud

martyp said:

Thanks, that's how I thought it would be as the capital would be reduced at the start of the year to accrue less interest on it, I'm thinking maybe the mortgage overpayment calculators consider the payment at the end of the year possibly?

👍 Compounding also works on the way down!

martyp

Thanks, I'm holding out for house prices falling further and interest rates falling (if the two may happen soon) before buying the other half as the rent for the other half is only £215 yet if I bought the other half it would be about £500 on a mortgage. So my plan was to use that extra £300 on the overpayments instead to also boost my eligibility for getting the mortgage on the other 50% and better LTV. It is painful knowing the other half has increased massively in value in 18 years but considered now wouldn't be the best time to go for it.
At present I don't also know if I can get a mortgage for the other half based on my income on top of the amount I have left.

IdrisJazz

I have 3.5 years remaining on a 1.24% mortgage, and I am not overpaying anything.

I put the overpayments I would have made in a year into a 4.4% 1 year bond, and I have other savings earning 3.25%. I will keep trying to maximise my savings during my mortgage fix period, as it will have more effect over the 3.5 years.

martyp

All sounds good, thanks for the advice.

I currently have savings accounts paying 6.17%, 5.25%, 4.5% and 2.5% which I pay in the monthly limits on each. The 2.5% has no limit on the amount put in and is easy access so I try and keep as much in there as I can. That's money I'm not using for the mortgage as would like to have it available if needed. Rethinking my strategy though as the £300 overpayment could easily go into the 2.5% account instead at least. I'll see what else is around at the moment. The deal with first direct is good. I would be tempted to switch for the bonus but my current accounts are linked to those savings accounts. Definitely food for thought though favouring the investing over the overpaying as can then as said use that money to pay off more of the remaining balance after the fix ends or use it against the other 50% share of the house.

K_S

@martyp Off of the top of my head at least 2+ genuine easy access savings accounts paying over 3.5%
https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#easyaccessanalysis

martyp said:

All sounds good, thanks for the advice.

I currently have savings accounts paying 6.17%, 5.25%, 4.5% and 2.5% which I pay in the monthly limits on each. The 2.5% has no limit on the amount put in and is easy access so I try and keep as much in there as I can. That's money I'm not using for the mortgage as would like to have it available if needed. Rethinking my strategy though as the £300 overpayment could easily go into the 2.5% account instead at least. I'll see what else is around at the moment. The deal with first direct is good. I would be tempted to switch for the bonus but my current accounts are linked to those savings accounts. Definitely food for thought though favouring the investing over the overpaying as can then as said use that money to pay off more of the remaining balance after the fix ends or use it against the other 50% share of the house.

martyp

Great, thanks. I'll see what's around.