Wow!

MissEyre

I don't come over here very often, but I have just been looking at a mortgage calculator, and worked out that on my £114,500 mortgage (currently £589 a month over 39 years), if I can increase my payment by just under £200 a month, that cuts the mortgage term to 21 years, without any other overpayments.

I am due a payrise of approx £200 next month, would it make more sense to just make regular overpayments, or to formalise the extra payment and renegotiate my mortgage term to 21 years?

Any suggestions gratefully received...and if you have seen my signature, it's not possible for me to make overpayments to the loan sadly, it's a full settlement only one.
Thanks x

angelavdavis

What is your mortgage rate? Are you a tax payer?

If your mortgage rate is higher than the current ISA rate, then by all means overpay, otherwise, use your ISA allowance first, then see if you can get a better interest rate (after tax) than you are paying on your mortgage. If your mortgage rate is higher and you have used the ISA allowance go for it.

My example is as follows:

I am a high tax payer.
I have already invested £3k in ISA
My mortgage rate 5.95% (therefore, I would need to earn 8.33% on savings/investments to match overpaying the mortgage). I have no penalties for overpayments.

8.33% is a tall order for most low risk investments.

So, for me, its worth overpaying. I actually pay into an offset account as I work freelance and so it helps to have that cushion to fall back on, while in the meantime it is offsetting against the mortgage to reduce my interest.

dimbo61

IF you can afford to overpay by £200 a month contact your lender and
ask to change the terms of your mortgage IE reduce the term to 21 years
and therefore increase your mortgage payment by £200/ month.
this cost me £50 with my lender when I reduced my term from 22 years to
10 and it costs me slightly more than £200 a month !!!!!
Dont do this until you have an emergency fund built up in ISA,s of say six months pay . check what interest rate you pay on your mortgage and what
you can get from an ISA ( 6.5 % ) GOOD LUCK

MissEyre

Thanks, my mortgage rate is 5.19% and I have a very small cash reserve (a couple of hundred) in addition to some shares. Sounds like my best plan would be to build up my savings with the salary increase until I'm comfortable, and then consider again, looking at interest rates on ISAs to see if it's worth it. I just can't believe how small an overpayment it takes to have my mortgage term!

Little_Mama

Hi Miss Eyre,

I would be a good idea to get up to 6 months salary behind you as an emergency fund but you could always get yourself a 'Mortgage Pig' (see sticky at the top of this forum) and then make the odd overpayment until you are in a more comfortable position to commit fully.

Good luck.
LM

phizzimum

If I was you I would have a direct debit taking the £200 straight out of my current account into the saving account so that I didn't get used to having the extra money!