When to begin overpayments?

Hari_Seldon

I get the feeling that I'll get a resounding - "As soon as possible!!!" here...

I may be over-analysing things but is there an optimum point to begin overpayments on say a 2 year fixed rate mortgage?

I just can't get my head around whether or not changes in interest rates after the fixed period may affect the worthiness of making overpayments during this initial period.

My gut feeling is that making overpayments from the start will help 'break the back' of the interest on interest period where it seems like nothing at all is actually getting paid off the capital..

Any friendly advice out there?

Hello to everyone, by the way...

wymondham

Hello!!

My answer would be as soon as you can comfortably afford to - remember life is for living first :j

You do save more the earlier you start though!!

Trying_to_be_good

NOW, NOW, NOW if you can! On two assumtions:
1) You can overpay without incurring early repayment charges
2) You've already used your cash ISA allowance if the interest rate on that beats your mortgage rate (ISA > 6% at the moment) - otherwise save in the ISA until that's full.

ailuro2

Yes indeed, asap, it's a bit like starting a pension when you're young- a little money can end up going a long way!

Use any of the mortgage calculators to work out what the money is worth.

A £10 a month overpayment on a 25 year, £150K mortgage at 6% will cost you £120 and have an interest saving of £396.

Same mortgage and amount but ten years later, and the amount saved goes down to £163

Yes, you can put the money in the bank and earn interest too, it really depends on how much a burden you feel the mortgage is on you. If you have no other debts, and can't get a good safe return on your money elsewhere, then overpaying into a fund that remains available in your mortgage can be a great way to save money!:D

You can tell by my signature which risk-free savings method I prefer.Luckily we have no other debt, so it makes sense for us to do this.

Jonbvn

Trying_to_be_good wrote: »

NOW, NOW, NOW if you can! On two assumtions:
1) You can overpay without incurring early repayment charges
2) You've already used your cash ISA allowance if the interest rate on that beats your mortgage rate (ISA > 6% at the moment) - otherwise save in the ISA until that's full.

The above is what I would suggest. I would add some other things to consider:

1. Affordability: Being savvy about money is fine. Overpaying your mortgage to the extent that your quality of life is significantly reduced is madness IMHO, although some may disagree.
2. Savings & Investments: Money for retirement is important, and pensions etc. must be considered. A mortgage free house with little or no income is not ideal.

HTH.

Hari_Seldon

Thanks everyone. There's been some really levelling advice given here.

I really appreciate the input and support...

johncolescarr

Hi,

I had the same question a while back, and the people that posted replies to me aslo agreed that it is a numbers game. For the majority of people its a case of overpay ASAP. You need to consider the interest rate of your mortgage to the interest rate of your savings AFTER TAX. Paying into cash ISAs can sometimes offer better rates than the rate of your mortgage, but of course this is only £3000 a year (or £6000 if you combine with a partner). But after you've filled your ISA allowance, it usually works out better to pay the mortgage.
This link lets you compare which is better:
http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings#calculator

kittycat07

I too have a similar question. I was horrified today to open our annual mortgage statement to see that we've only paid a grand total of £1400 odd off the capital in the past year. BUT we plan to move this year to a bigger place (with a bigger mortgage!) and I have a loan and CC outstanding. Much as though I'm desperate to be rid of the mortgage would I be right in thinking that I'm better to clear those first?

Trying_to_be_good

The rule of thumb is to pay off the debts that are costing you the most interest (i.e. the highest interest rate) first - but check for early repayment charges.

Mortgages are actually quite cheap debt compared to ther loans/debts, as they're secured on your property. But they're still debts to be cleared as soon as you can as far as I'm concerned!

Jonbvn

kittycat07 wrote: »

I too have a similar question. I was horrified today to open our annual mortgage statement to see that we've only paid a grand total of £1400 odd off the capital in the past year. BUT we plan to move this year to a bigger place (with a bigger mortgage!) and I have a loan and CC outstanding. Much as though I'm desperate to be rid of the mortgage would I be right in thinking that I'm better to clear those first?

Try and get your CC onto a 0% offer ASAP. I would recommend that you clear the loan & CC's before you up-size. After all, if you wait a while that larger house is likely to be somewhat cheaper.

phizzimum

Hari_Seldon wrote: »

is there an optimum point to begin overpayments on say a 2 year fixed rate mortgage?

.

what is the rate you are currently fixed at? as others have said, if you can earn more interest by saving your spare cash rather than overpaying, then save a lump sum to put against the mortgage when the rates go up. But don't forget you will pay tax on your interest, whereas interest saved on your mortgage is by it's nature tax free