Over paying- lump sum or gradual?

doggychops

Hi, 

Apologies but couldn't find an answer anywhere. 
I am due to receive an inheritance, nothing huge, but it will help.
My question is, would I be better paying off a lump sum or overpay each month?

Outstanding is 60k
Lump sum will be around 15k

Is it better to pay 15k off in one go, 

5 k a year for next 3
Or

Regular monthly overpayment.

We are in a 3yr fixed which I think is up for renewal soon (I don't have details as I write this because its in my wife's name)

12 years left on the term.

I think that's about it, so any advice is appreciated.

Thanks

Emmia

doggychops said:

Hi, 

Apologies but couldn't find an answer anywhere. 
I am due to receive an inheritance, nothing huge, but it will help.
My question is, would I be better paying off a lump sum or overpay each month?

Outstanding is 60k
Lump sum will be around 15k

Is it better to pay 15k off in one go, 

5 k a year for next 3
Or

Regular monthly overpayment.

We are in a 3yr fixed which I think is up for renewal soon (I don't have details as I write this because its in my wife's name)

12 years left on the term.

I think that's about it, so any advice is appreciated.

Thanks

I think the key is going to be what are the fee free overpayment limits are on the fix? If you're limited to 10% of the outstanding balance then you'd only be able to put in ~£6k this year

doggychops

Ahh yes, I didn't consider that. 
I think I have heard somewhere that natwest allow 20% overpayment, but haven't checked this out yet.
That, I assume is 12k max for current figures.

I don't have the funds yet so just seeking advice. So thank you for this. I'll gather more info and update as I understand I'm a bit vague.
Not great at this tech stuff,  so thanks again.

YBR

Assuming that you and your wife have a satisfactory emergency fund and pension provision ...

To minimise interest, pay as early as you can, but you have to also take into account any penalties. As you will receive the lump sum at once, drip-feeding it monthly would mean you're paying more interest than you need to.

Typically fixed-rate mortgages allow you to overpay 10% a year without penalty, plus there may be an early repayment charge if you clear your mortgage in the 3yr fixed term. The penalty usually means that you'd want to pay circa £6k this year, then again next year etc.

Check these are what applies to you and do some arithmetic.

Then also look at the alternatives - what you might earn if that £15k were put in a savings account for 3 years,

or say £5k in each of 1year/2 year savings.

Against these purely rational considerations, think also about the satisfaction of having got closer to being mortgage free, and the risk that you might be tempted to blow the money on something trivial instead.

doggychops

The 15k is just the amount I was thinking about paying. There is more from the inheritance but we have other things to consider and we will save some. 
I am just hoping to get rid of some of the mortgage to hopefully make our life a little better. We don't have huge salaries but would like to try and finish the mortgage earlier if we can. I guess it's a conversation with the lender to see what fees, like you have both said. 

saajan_12

doggychops said:

Outstanding is 60k
Lump sum will be around 15k

We are in a 3yr fixed which I think is up for renewal soon (I don't have details as I write this because its in my wife's name)

s

Well depends on two key details really: 
1) what overpayments are allowed - could be 10% of the current balance or the original balance, could be a different % entirely, when does the 'year' renew? 

2) what is the interest rate you're paying on the mortgage? 
If very low then may be beneficial to save the money and pay off a lump sum at renewal time.