Mortgage Overpayment

CBing

I would appreciate some advice please.  I am relatively late to having a mortgage, I am 3 years in to a 25 year mortgage and I will be 67 when my mortgage ends.  I am currently paying £618 a month for my mortgage and I can afford to slightly over pay it up to £700 a month.  Would this be worth my while, and how would I go about it?  Do I just contact HSBC and ask them to increase my direct debit, or do I transfer the extra money each month manually?

Thank you for any advice, I am a mortgage novice and quite honestly never imagined I would ever have one having been in an IVA many years ago.   I am now EXCEPTIONALLY careful with my money and want to plan ahead.  

la531983

Its likely its within the 10% a year allowable as overpayments on most rates, so no issue there. Any overpayment no matter how small will reduce the amount you have to pay overall.

How you pay it is totally up to you. Personally I would let the lender take the minimum (in case you forget!) and then I would pay the extra £82 myself, it leaves scope to not pay it if you had a lean month, or maybe pay a bit more if you had the opposite.  If the lender revises the minimum payment downwards as a result of the overpayments, simply up the manual one you make. 

The overpayments will eventually be sufficient for you to look at reducing the term, which is best done at the point you put the mortgage on a new rate.

jlfrs01

What interest rate are you on and are you in a fix?

la531983

Yes should have said, if you can get a better savings rate than your mortgage rate you would be better putting the extra funds in a savings account and paying it off when the fixed rate ends (assuming you are on a fix)

CBing

@la531983 thank you for the advice, I am on a fixed rate of 3.24% until 31st October 2025 and my savings interest is 5% so it makes sense putting the extra in my savings each month and paying it off when my fix ends.  

la531983

You can probably get better than 5% at the moment if you look around, and are happy to tie the funds up for two years.

jlfrs01

CBing said:

@la531983 thank you for the advice, I am on a fixed rate of 3.24% until 31st October 2025 and my savings interest is 5% so it makes sense putting the extra in my savings each month and paying it off when my fix ends.  

Spot-on. If you're happy to lock your savings away for a minimum 12 months then NS&I have literally announced 2 very competitive savings bonds products worth looking at but there's plenty to choose from listed on this website for instant access or longer term. 

South_coast

The difference between earning 5% on £82 and paying 3.24% on £82 is only £1.44 a month (compounding will make the figure slightly more over the course of a year, but not much). Personally, I'd be overpaying the money, just so I had the satisfaction of feeling I was overpaying