Is now a bad time to overpay?

Sideways

I have been overpaying my mortgage for almost two years now, thanks to this site and all the encouragement from its super forum users. Last year alone my wife & I managed to overpay £2100.

With the uncertainty over the economy and rising inflation, I'm wondering if overpaying is such a good idea right now. Perhaps the money is better off in a savings account.

The way I see it- If things continue to deteriorate and in eighteen months from now the economy is in trouble, inflation is out of control, unemployment on the rise and the immediate future is looking bleak, what difference does it make if my mortgage is £30k or £28k?

It will not affect our quality of life or put food on the table if times are hard. What will help, if we were to find ourselves going through a prolonged 'rough patch', is the security of having a healthy level of savings to fall back on.

Maybe now is the wrong time to overpay :undecided

Shambler

I would prepare for job loss either by saving or taking out an insurance policy and then get back to overpaying.

pollyanna24

Double check your mortgage conditions.

I overpaid about £1,000 in 2006/07 and when I got my statement at the start of the year, it showed this and also said I could take this money back if I needed to.

I stopped overpaying and started putting money in a savings account as we are saving for when our baby arrives, so it makes more sense for us to have a savings account for when I am out of work rather than overpay mortgage, but if you have above condition that you can take it back if you need it, then maybe continue overpaying?

Lotta

I would personnaly ensure I have emergency savings for X months before overpaying on my mortgage. You never know what happens and a buffer is always good to have. It might also be better to save your money at 6.5% then paying down your mortagage.

tanith

We have a Nationwide Mortgage and can borrow back our overpayments whenever we want to.......

Tozer

Lotta wrote: »

I would personnaly ensure I have emergency savings for X months before overpaying on my mortgage. You never know what happens and a buffer is always good to have. It might also be better to save your money at 6.5% then paying down your mortagage.

Yes but if you are a taxpayer, then you are not getting 6.5% interest rate as that is the gross rate (unless in a cash ISA).

If you are overpaying, then you are effectively earning interest on the overpayment at a tax free rate. As someone else said, you may well be able to borrow back the money anyway so no harm in overpaying at this point.

I would be keen to reduce my mortgage as much as possible thus creating further equity in the property.

Sideways

Lotta wrote: »

I would personnaly ensure I have emergency savings for X months before overpaying on my mortgage. You never know what happens and a buffer is always good to have. .

Totally agree.

But are we entering a very difficult period, perhaps more so than many of us, if not all, have ever experienced?

I am not naturally a pessimistic person but I am reading a lot about where our economy is going. Some, not all, believe that we are only at the beginning and things will get pretty rough over the next eighteen months.

On the bright side, Heather Mills won’t be shopping at Aldi when the muck hits the fan :cool:

talana

It depends very much on your mortgage interest rate compared to any savings rates you're getting (ISAs or otherwise, remembering to compare the NET rates on any other savings).

Also depends on which sort of mortgage deal you have, whether you're able to reborrow overpayments if it became necessary or whether you're effectively locking the money away.

In my situation, I don't think it's now the time for overpayments.
My mortgage rate - 5.95%
My cash ISA - 6.1% for starters.
Makes more sense to save.

Dithering_Dad

As other posters have said, if you're worried then contact your mortgage provider and check if your overpayments are retrievable either directly by withdrawing the cash or indirectly by allowing you to take payment holidays.

I would always advise anyone who is making any sort of long-term investment (such as mortgage overpayments) to make sure that they have adequate emergency savings. If you get into a bad patch, you don't want to have to cash in your investments at the wrong time, any more than you'd want to try and remortgage.

Dithering_Dad

talana wrote: »

It depends very much on your mortgage interest rate compared to any savings rates you're getting (ISAs or otherwise, remembering to compare the NET rates on any other savings).

Also depends on which sort of mortgage deal you have, whether you're able to reborrow overpayments if it became necessary or whether you're effectively locking the money away.

In my situation, I don't think it's now the time for overpayments.
My mortgage rate - 5.95%
My cash ISA - 6.1% for starters.
Makes more sense to save.

Though you only have a 0.15% difference in your interest rates, which on a £3000 investment, amounts to just a £4.50 a year greater return in your ISA than you'd get from over paying the mortgage.

If you had £30,000 in your ISA, then you'd be making £45 per year more with the ISA, than you would from overpaying the mortgage by the same amount.

As long as your mortgage product allows you to withdraw overpayments, then in my opinion I think you get more incentive to make futher savings from seeing a debt go down rather than from seeing savings go up. Naturally, this is because I'm a weak saver - I can easily overpay my mortgage by £30k and not give it a second thought. However, if I had 30k worth of savings, then I'm afraid some of it would get spent on a new car or perhaps a new motorbike or a new driveway or a holiday....

talana

As long as your mortgage product allows you to withdraw overpayments, then in my opinion I think you get more incentive to make futher savings from seeing a debt go down rather than from seeing savings go up. Naturally, this is because I'm a weak saver - I can easily overpay my mortgage by £30k and not give it a second thought. However, if I had 30k worth of savings, then I'm afraid some of it would get spent on a new car or perhaps a new motorbike or a new driveway or a holiday....

Oh, I agree everything else being equal it comes down to whatever works for you.
I can see that it might be more encouraging to see a debt go down.
However, if I threw all my spare cash at mortgage overpayments I'd probably be looking at £3-4K pa (just about my cash ISA allowance in other words). If and when mortgage rates go up again, the money is there ready for a lump sum overpayment.

There are only 2 circumstances I'd withdraw money from my cash ISA at the moment (my own rules): (1) a substantial emergency; (2) mortgage overpayments.
That holiday you mention will have to come from other savings!