Mortgage overpayment - 2 year term

firsttimeproperty

We are first time buyers, our interest rate is 4.44% and we are on a 2 year fixed mortgage over 25 years. 

In terms of overpaying, I understand that overpaying reduces the interest paid and therefore reduces term length however, depending on what interest rates are doing we aren’t going to be on the 4.44% interest rate forever. 

When we considered the best mortgage we looked at the best 2 year fixed rate irrelevant of the whole term as we will need to remortgage multiple times until the house is paid off. 

I have just inherited money, and we were considering overpaying the next two years the full 10% allowed but we can’t understand how will this benefit us anymore than holding it and making money on the interest in a bank account and then putting it down when we go to remortgage in 2 years as it won’t affect our monthly payments and when we remortgage we would have the same LTV and opportunity to find the best rate. 

onomatopoeia99

Probably best to ask for this to be moved out of the "Techie Suff" forum, which is for questions about "techie stuff" and not mortgages.,

Hoenir

If you can find a better after tax interest rate by saving the money then do it. Has always been the case of what's the right thing to do at the time.  Boils down to the maths. 

firsttimeproperty

We are first time buyers, our interest rate is 4.44% and we are on a 2 year fixed mortgage over 25 years. 

In terms of overpaying, I understand that overpaying reduces the interest paid and therefore reduces term length however, depending on what interest rates are doing we aren’t going to be on the 4.44% interest rate forever. 

When we considered the best mortgage we looked at the best 2 year fixed rate irrelevant of the whole term as we will need to remortgage multiple times until the house is paid off. 

I have just inherited money, and we were considering overpaying the next two years the full 10% allowed but we can’t understand how will this benefit us. The other option is to hold it in a bank/isa earning interest and then putting it down when we go to remortgage in 2 years as it won’t affect our fixed monthly payments. When we remortgage we would have the same LTV and opportunity to find the best rate and could borrow over 20 years for example 

Hoenir

If you can find a better after tax interest rate by saving the money then do it. Has always been the case of what's the right thing to do at the time.  Boils down to the maths. 

Olinda99

you might struggle to find more than 4.44% (tax free) going forward

Newbie_John

Try to look at mortgage as "savings", but the other way round.
Overpaying helps because there will be less interests charged, a bit like having £200k in savings and withdrawing £50k, you'll get 25% less interests (here you will pay 25% less interests).

Overpayment can reduce term, or reduce how much you pay monthly.

No, you don't need to ever remortgage - when your 2 years fix end and you wish to stay with exisiting provider you do a "product transfer" which can be done in 5 minutes online and you look into another 2,3,5.. years fixed deal (again a bit like putting money into fixed term saving account).

If you have a saving account (which after tax etc.) returns 4.44% and mortgage that charges you 4.44% - then it's equal, financially no difference. £200k mortgage at 4.44% costs the same what untouched (don't withdraw interests) savings.

Tax is the one to consider - if you on 40% tax rate, and your savings interests go over £500 (or 20% and £1000) then the earning rate almost halves - you would be paying 40% tax on interests - mortgage on the other hand is "tax free".