Remortgaging and overpaying

slhqoue

Hi all, we have £195,000 of a £215,000 mortgage left to pay. We're fixed at 1.76% until end of February 2025.

On the one hand I feel really lucky we at least have another 18 months + on this fix, given all the posts from people with fixes ending this calendar year. Having said this, it seems sensible to at least think about things we might be able to do to minimise the situation when we face remortgaging.

What would be the easiest way of working out how much overpaying our mortgage could save us?

I do at least hold out hope that, as our fix ends after the next election, a potential Labour government would offer some relief to mortgage holders ... and that rates might come down a little bit? (Although clearly unlikely to get another 1.76% deal!)

Yorkie1

Have you tried playing around with the overpayment calculator on here?
https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

TheMilkmansDad

personally - I'd not overpay. I'd save the money in a relevant savings account paying interest above the rate of the mortgage. When you come to remortgage, use the savings (plus interest earned) against the balance to reduce the amount required.

jrawle

This seems to come up several times every day at the moment. You will be better off putting the money into a savings account and then using the money to pay off a chunk of your mortgage when your fixed deal ends. You don't give any details of how much you could overpay/save per month, but suppose you would be better of by £500 by overpaying, if you instead put the money into a savings account at 3.52% interest, you'd make around £1000 in interest. Take advantage of the soaring interest rates while you are in this position. It's a good opportunity to get a greater return on your savings.

jimjames

jrawle said: if you instead put the money into a savings account at 3.52% interest, you'd make around £1000 in interest. Take advantage of the soaring interest rates while you are in this position. It's a good opportunity to get a greater return on your savings.

Current best rate is 4% and that's likely to increase now that base rate went up by 0.5% yesterday so don't settle for 3.5%.

jrawle

jimjames said:

jrawle said: if you instead put the money into a savings account at 3.52% interest, you'd make around £1000 in interest. Take advantage of the soaring interest rates while you are in this position. It's a good opportunity to get a greater return on your savings.

Current best rate is 4% and that's likely to increase now that base rate went up by 0.5% yesterday so don't settle for 3.5%.

The point was that if the interest rate is twice your mortgage rate, you profit by approximately twice the amount you would by overpaying. Of course, the higher the interest rate, the better.

Gareth77

OK thanks - I think I could save £1500 a month if I was very discipline.

The mortage says I can overpay 10% per CALENDAR YEAR - Mort is at 350K now, will be at 280K when the fixed finishes in 3 years time.

So it feels like I should do a savings account and make an over payment EVERY DECEMBER?

What I am confused about is - when I overpay do I pay of the loan or reduce the term? Ultimately I don't want my payments to shoot up in 3 years time. 

But I hear people saying you should reduce term?

TheAble

I do believe lenders allow a short window before a fix expires where you can pay down any amount you like - so paying back 10% every December may not be necessary.

Definitely check with your own lender first though, since policies vary (and of course may change).

Take into account as well that money made on savings interest may be taxable, whereas interest saved by making overpayments is not.

Gareth77

TheAble said:

I do believe lenders allow a short window before a fix expires where you can pay down any amount you like - so paying back 10% every December may not be necessary.

Definitely check with your own lender first though, since policies vary (and of course may change).

Take into account as well that money made on savings interest may be taxable, whereas interest saved by making overpayments is not.

So i assume something like a variable cash ISA like this one is the best option;

https://www.sainsburysbank.co.uk/savings/cash-isa

simon_or

If you'll pay 40% tax on the interest then a cash ISA is great.

If you may pay 20% tax on all/some of it, then a normal easy access/notice savings account might be as good or better.

If it's very unlikely that you'll pay any tax on the interest then a normal easy access / notice savings account would be miles better than a cash ISA.