best way to over pay?

want2bmortgage3

Hopefully I can start to overpay on my mortgage quite soon, and thought of 2 ways of doing it.

1- reduce the term of the mortgage, (say 15 years instead of 24) which will set a target for me to be mortgage free, increasing the monthly payment, to a higher fixed amount.

2- just overpay as and when, as much as i can afford. each time i over pay the monthly payment will fall, giving me more money to overpay again.

Any ideas on whats the better option?

JonnyBravo

Depends on a few factors... the most notable being the first option has less flexibility. What if you decide a year down the track you dont want to keep the payments up/you have a change in your life circumstances etc

jess444_2

We have chosen first option as we had definate goal in mind (early retirement). We knew from past experience that if it was flexible we might be tempted by other things, also we were only allowed to overpay a % - sorry can't remember how much. Saying that it has been a struggle - and if we had been younger and thought our circumstances might change we would not have chosen this option. Which ever you choose - do it as soon as you can, I wish we had done it years ago.

phizzimum

The disadvantage of option 2 is that it's easy to make excuses not to overpay. whereas if you increase your regular monthly payment the money's gone before you have a chance to think about it!

We rounded our monthly payment up to £1000, but left the term of the mortgage as it was so we could just go back to paying the required amount if we had to.

We also chip in extra cash as when we can (eg mortgage pig, or this month we put in the money that we would usually have paid on council tax and water rates)

Peelerfart

It may be that a combination of the two may be good for you.

We are overpaying on our mortgage by combining the two methods and although it's nice to say we've only got "X" years left , it's also very nice to get letters from the BS and see the falling balance.

moneypooh

We had to re-mortgage a few years ago, and we did reduce the term but within affordable means - just in case. We have also started to overpay a little if funds are available, it was a good choice to not go too 'tight' as we have needed to use the extra for bills we hadn't planned on i.e a new boiler.

tsharp

How do you physically make the overpayments? Nationwide said to go to the branch and pay a cheque/cash in.
But it would be much easier to use a Direct Debit/Standing Order so that's it's regular and hassle free etc.

angelavdavis

tsharp wrote: »

How do you physically make the overpayments? Nationwide said to go to the branch and pay a cheque/cash in.
But it would be much easier to use a Direct Debit/Standing Order so that's it's regular and hassle free etc.

I have to say, it depends on your bank to be honest. I can pay by standing order. Some banks insist on you physically paying a cheque over the counter (my OH's bank - HSBC does for example).

_______________

I am overpaying a number of ways - I call it my triple wammy!

1) I remortgaged and switched to an offset so am building up funds in an offset savings account. I use this as a repository for funds that i have stoozed also. This means I have I can get at the funds in an emergency. I pay any surplus current account funds into here at the end of the month and any payrises, bonuses, etc.

2) Any additional monies I generate (quidco or credit card cashback, AQA, Britannia member bonus, etc) I pay directly off the capital as it is extra money I hadn't originally bargained on earning.

3) As the repayments have reduced with % reductions, overpayments, etc, I have added a standing order which tops up the monthly dd payment so the payments are always static at £1147 per month (the original repayment amount) instead of £909 (the current payment amount).

I could reduce the term of the mortgage - but my bank will charge me £50 each time and so I am not particularly worried about this at the moment (the £50 is better in the offset!).

in-need_of_money

Hi, its quite easy to set up another standing order with your bank to overpay on your mortgage, just go to your bank and fill in a standing order form with the amount you want to pay and your mortgage account number, and hey presto its done. The beauty of this is, that if one month you know you will be a bit short, you can withold the SO for that amount, without disturbing the main direct debit. Also, it just goes out the bank, so you dont have to remember to overpay, of course you can also go into the branch and apy, but be careful not to overpay by too much as you may be penalised by redemption charges. Check the small print on your mortgage deal. If you have more than one mortgage account with Nationwide you may be able to overpay by as much as £500 per account. But, if you go one penny over, then you will pay redemption charges. Good Luck!

tsharp

Yeah, our Nationwide mortgage has a £500 overpay limit, but i doubt we'll be exceeding that. Despite battling credit card repayments (all at 0%), i am eager to at least make some small monthly payments to the mortgage, as it all makes a difference.