Best way to overpay?

Ambyth

When I bought my house I took a 2 year fix and during those 2 years I made some overpayments.  When that came to an end I took a 5 year fix.  

As the new paperwork did not show any difference in my remaining term, I rang them to ask what difference the overpayments had made to the term.  They stated that I could work it out by dividing the overpayment by the monthly mortgage payment.  So, under my first fix 3,000/325 = 9 months.  but under new mortgage £3,000/440 = 6 months. Am I understanding right that I have lost 3 months by them not taking the overpayment into account at the end of each mortgage term? 

My question, as that method of calculating allows the remaining term to fluctuate, is it worth me overpaying monthly or just saving it to one side until the time comes when I'm ready to let the mortgage run on to a SVR and then make a large payment.  Or does continuing with regular overpayments still prove more beneficial because of the interest I won't pay?

Thank you for any advice 

BarelySentientAI

Ambyth said:

 Am I understanding right that I have lost 3 months by them not taking the overpayment into account at the end of each mortgage term? 

No, you've not lost anything.  Your overpayments have reduced the monthly payment required to match the term. Often, if you want overpayments to make the term shorter, you need to tell them to do that.

Ambyth said:

My question, as that method of calculating allows the remaining term to fluctuate, is it worth me overpaying monthly or just saving it to one side until the time comes when I'm ready to let the mortgage run on to a SVR and then make a large payment.  Or does continuing with regular overpayments still prove more beneficial because of the interest I won't pay?

The earlier any overpayment is made, the bigger impact it has.  That's compounding.  Of course, saving that same money would also compound.

If your savings interest rate is higher than the mortgage interest rate, saving to one side is 'better'.
If your mortgage interest rate is higher than the savings interest rate, overpayments are 'better'.

I say 'better' because I'm only accounting for the basic maths, nothing about emergency funds, sentiment, future LTV etc etc

Hoenir

Ambyth said:

As the new paperwork did not show any difference in my remaining term,

It won't. The mortgage term is contractual. By overpaying you've reduced the amount of interest you'll pay over the remaining term of the mortgage. When the fixed term product comes to an end. Your monthly payment be recalculated to repay the then outstanding balance by the mortgage end date. Continue to make overpayments and you'll ultimately reap the benefits. 

Ambyth

Thank you.

@BarelySentientAI @Hoenir

kimwp

If you want the overpayments to reduce the term (which will have the most cost impact), you may need to ask them to do this.

I asked both companies I had a mortgage with, and they simply they changed the setting on my account.

Newbie_John

kimwp said:

If you want the overpayments to reduce the term (which will have the most cost impact), you may need to ask them to do this.

I asked both companies I had a mortgage with, and they simply they changed the setting on my account.

This statement is only true if savings rates are lower than mortgage rates.
Right now there are ISAs with 5.17% and mortgages are about 4.7%.

So at the moment best options are:
1) save
2) overpay and reduce monthly, save the difference
3) overpay and decrease term