Monthly payments or micropayments to the mortgage

MrsToast82

Hi

We are at the stage of wanting to repay our mortgage early. The mortgage is with Barclays and we can pay 10% a year without fees.

My question is do we save money over the month and throw £500+ as an extra payment or do smaller payments over the month when money is available. As the interest is calculated daily, would a larger extra payment help.

Many thanks for all your help x

poseidon1

This should explain your mortgage overpayment options and how they are treated by Barclays -

https://www.barclays.co.uk/mortgages/existing-customer-centre/overpayment-underpayment-explained/

However, suggest you think very carefully about whether the funds available for mortgage overpayments might not instead be better directed towards improving pension provision, and/or accumulation of tax free ISA savings.

There is a general tendency to unthinkingly prioritise eradicating mortgages as soon as possible, thereby tying up substantial capital in a non income producing asset, to the detriment of building secure and increasing retirement income sources.

MrsToast82

https://forums.moneysavingexpert.com/discussion/comment/82097305#Comment_82097305

We are putting 15% into retirement & saving elsewhere too however we do want to pay off our mortgage as well

Newbie_John

https://forums.moneysavingexpert.com/discussion/comment/82097511#Comment_82097511

Sure, lets say your mortgage is 4% so this is like a 4% saving account without any access, its the same as putting money to 4% saving account - and you can use it at the end of your mortgage to pay it in full when the balances match - with easy access if ever needed.

In the end all depends on where is the higher interests, mortgage or savings.

Regarding multiple monthly or one larger it really makes little difference, paying £100 quicker by 2 weeks with 4% mortgage saves you £0.16 vs paying it two weeks later - but if you kept that £100 on 4% savings account - it wouldnt save a penny as agter 2 weeks you could overpay with £100.16 instead..

Yorkie1

The interest rate comparisons assume that you are not paying any tax on your savings interest. If you are, the figures would need to take account of that.

Newbie_John

Theres no need to pay tax on savings - ISAs and many short term low coupon gilts.

Still really down to numbers - whats your mortgage rate and whats best saving instrument you can use.

But i would definitely not bother with smaller multiple payments each month..

BikingBud

Interest rate comparisons also assume that you will continue working, and therefore continue paying tax, whereas if you pay off a mortgage and can stop working then you are getting your time back.

If you need to generate 15k per year to pay the mortgage you need to earn less, eg with £35k to pay £15k on mortgage you need to earn over £43.5k whereas if you clear the mortgage and only now need £20k you can reduce hours to earn £22.8k so can go part time.