Mortgage Renewal and Overpayment

MoneySavvyMum

Hey there,

We have a plan to complete our mortgage at the end of 2030 and with our 2.39% NWide 5 year fixed deal ending in Sep 2027 with est. £250k left on the loan and 25 years remaining, I’m unsure what should be our next move.

Our plan is to continue making around £3500 overpayments each month with an accumulation of rental yield / equity from another property we will pay off what would be a remainder of around £165k at the end of 2030 (with how bleak the current interest rates of >4% is looking). The overpayments would help us to reduce any further interest added to the principal.

I think we would prioritise security above all with two young kids our expenditure we’d like to keep stagnant with very little surprises along the way. The issue is not many fixed rates products offer anything more than 10% overpayment allowance before being hit with ERC. The trackers would be ideal for this flexibility but come with uncertainty. Are there any other possibilities we’ve not considered when it comes to aggressively overpaying in time for 2030 completion?

I thought about just letting the interest creep up on a fixed term, accumulate our savings in a high interest account / stocks & shares ISA then lump sum pay off at the end of term. Has anyone done this before? Any other gotchas we’d need to consider with this approach.

Appreciate any help or guidance.

MoneySavvyMum

worth noting our next deal would be roughly at 50% LTV as we’ve paid almost half of it off in 5 years

dinosaur66

most people will not agree with me i guess but i have never liked any form of debt

and i agree with what you are doing

i did the exact same

me i would get a 3 or 5 year fixed and then pay your 25k overpayments first year and save the rest in as high a paying account as you can

same second year maybe 22k limit

third year

overpayment fee was 0.75% when i done it with nationwide i think its gone up to 1% in the last year

see how you are going and delay it to 4 years and a month and pay it all off with your savings and overpayments when the rate is £10 excess per thousand overpayment

Jemma01

I did that with a tracker, it started at 5.44%, and thankfully it kept going down, I think the last was 3.94%.

I think a tracker is your best bet to meet your target. If you fix, interest will keep building up cuz you can't bring the principle low enough and that would extend your timelines.

Note that HSBC allowed switching to fix if you wanted to (e.g. if it was too unpredictable for your liking). Please check the terms are still the same.

BoE has only been changing by 0.25% so that unpredictability is not too bad. They could do 0.5, but not seen it between end of 2024 and 2026.

jimjames

I thought about just letting the interest creep up on a fixed term, accumulate our savings in a high interest account / stocks & shares ISA then lump sum pay off at the end of term.

We did this but left mortgage to run. Built up funds in S&S ISA and could have paid off mortgage early if we'd wanted but seemed little point. At the point mortgage was finally cleared at the normal end date we had significantly more than the mortgage amount in the S&S ISA that had grown.

poseidon1

Interesting how mortgage freedom seems to be often conflated with financial freedom.

Definitely agree @jimjames' approach.

I took similar approach, but on interest only mortgage for as long as possible and devoting surplus earned income to filling my boots with various tax free savings opportunities over the years (PEPs, Tessas, ISAs) as well as bumping up sipp contributions ( no DB pensions eligibility).

Seems to me unless one has a good employer funded DB pensions that will take up the slack of providing for eventual retirement income needs, slavishly devoting all spare resources to attaining early mortgage freedom ties up significant wealth in a non income producing asset ( the home) to the detriment of creating sizeable and more accessible pots of wealth over the critical wealth building years. Its a question of balance in my view.

Currently have a mortgage in retirement and expect to replace this with equity release as part of an IHT mitigation strategy now that SIpps will be IHT liable in future.

jimjames

devoting surplus earned income to filling my boots with various tax free savings opportunities over the years

The other advantage of this is that the ISA allowance is limited each year. If you've paid surplus into mortgage instead then that allowance is lost. You can start once your mortgage is clear but will never get the allowance back. The money in ISA is completely tax free so any interest/income earned isn't counted against your tax allowance which can be a real bonus when you come to retirement.

Yorkie1

If you are planning on needing the funds in 2030, a S&S ISA probably is not the best place for the funds in the interim because of the risk of volatility in the short term, from which there is less time to recover.