Bulk overpay or stick to the 10% ...

Squirrelz92
Squirrelz92 Posts: 712
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edited 9 October 2023 at 2:11PM in Mortgages & endowments
Hi all, hoping for some clarification and advice if possible as I am a little unsure of what my best option is. 

I am currently on a 5 year deal of 3.56% for an £89,000 mortgage. In 2 years time I am looking to start overpaying heavily by which time my balance will be around the £86,500 mark give or take. I am wanting to take full advantage of the 10% overpayment per year (Jan to Dec) which for the first year will allow me to throw £8,650 roughly over the course of 12 months (£725 extra a month). This will then leave me with just 9 months left of overpaying 10% of the new balance before my deal comes to an end in Oct 2027.

My questions is: should I continue to pay the 10% max divided by 12 equal installments over the next 2 years up to my deal ending or should I save as much as I can from the start of 2026 up to Oct 2027, and pay off a large chunk before choosing a new deal in Nov 2027?

I am not sure if its possible to pay off a large chunk of your mortgage when choosing a new deal? If so, how do you go about it? What would people advise? I am conscious that I will be able to pay off roughly £900 a month every month from Jan 2026 onwards which will naturally take me over my 10% allowance for both years which I don't want to do.

Any advice would be greatly appreciated. I also know this is 2 years down the line but I am very keen on FIRE and becoming mortgage free as soon as possible :)

Side note: I would overpay from Jan 2024 but my house renovations have been put on hold whilst I have thrown everything at becoming debt free which I will be on the 24th Oct :) Renovations are next for the kitchen, front and back gardens which will take me roughly 18 months to 2 years to save up for and have done. After this is when I am wanting to tackle my mortgage with everything I have!

Many thanks in advance!

Debt Free Date: 24th October 2023! £7402.10 Paid Off In 6 Months!
3 Month Emergency Fund: £3500 / £3500
#60 2024 Mortgage-Free Wannabes: £200/£2500

Comments

  • kwangomango
    kwangomango Posts: 21
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    edited 17 October 2023 at 1:59PM

    My questions is: should I continue to pay the 10% max divided by 12 equal installments over the next 2 years up to my deal ending or should I save as much as I can from the start of 2026 up to Oct 2027, and pay off a large chunk before choosing a new deal in Nov 2027?
    Both easy access and fixed rate savings are higher than 3.56% right now so you could be better off putting the money into savings rather than overpaying the mortgage:
    https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

    The effective savings rate will potentially be much lower however if you are a tax payer:

    For example:

    • A gross (before tax) savings rate of 3% with no tax to pay is also a net (after tax) savings rate of 3%.

    • A gross (before tax) savings rate of 3% with 20% tax to pay is a net (after tax) savings rate of 2.4%

    • A gross (before tax) savings rate of 3% with 40% tax to pay is a net (after tax) savings rate of 1.8%



    I am not sure if its possible to pay off a large chunk of your mortgage when choosing a new deal? If so, how do you go about it? What would people advise? I am conscious that I will be able to pay off roughly £900 a month every month from Jan 2026 onwards which will naturally take me over my 10% allowance for both years which I don't want to do.
    If remortgaging, you'd just borrow less money from the new lender and use your lump sum to pay the difference at remortgage time.

    If product switching with the same lender i'm not sure if you have this option. You might need to slip into the lenders SVR rate at the end of your initial 5 year fixed period where you can then use a lump sum to pay off as much as you like. Once this is done you would then switch to the new product. I'm just guessing here though - you should speak with the lender to see what your options are.
  • Andreg
    Andreg Posts: 183
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    edited 17 October 2023 at 11:43AM
    Well done on becoming "debt free", but you need to build an emergency fund, equivalent to at least a few months pay, before paying off the mortgage.   Savings accounts are paying much more than your 3.56% mortgage rate so that's the better option in the short term anyway.
  • Andreg said:
    Well done on becoming "debt free", but you need to build an emergency fund, equivalent to at least a few months pay, before paying off the mortgage.   Savings accounts are paying much more than your 3.56% mortgage rate so that's the better option in the short term anyway.
    Hi @Andreg. Thanks for commenting. I follow the Dave Ramsey method so already have an emergency fund. My plan is to extend this to cover 3 months worth of bills over the next quarter followed by 2 years of renovating,. This is all to do before overpaying my mortgage :) 
    Debt Free Date: 24th October 2023! £7402.10 Paid Off In 6 Months!
    3 Month Emergency Fund: £3500 / £3500
    #60 2024 Mortgage-Free Wannabes: £200/£2500
  • Sncjw
    Sncjw Posts: 3,487
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    Check when your year actually starts. Mine starts when I started the mortgage and will be April and not January. 
    Mortgage free wannabe 

    Actual mortgage stating amount £75,150

    Overpayment start date 1/3/23.

    Starting balance £66,565.45

    Current balance £63,787.16

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