Mortgage Overpayment Strategy?

In our previous property we occasionally OP'd lump sum money from sharesaves and bonuses (this was back in late 1990s/ early 2000s).

We've been here since late 2005 and had nothing like sharesaves and bonuses in that time -our first OP was rounding up the monthly payment to the next 100 - from memory the required payment was £865. xx and we paid £900/ mth, making the OP £34.xx/ mth. We then increased this gradually by £50/£100 a month until we were paying £1500/ mth (by which time our required payments were obviously lower than £865, due to the accumulation of OPs) I never once changed the term of the mortgage and only lowered the monthly payment down when my husband was out of work for a considerable time (even then I kept it rounded up to the nearest £100 - maning the grand sum of £5.94 a month was being OP'd! - psychologically it was important to me to pay something extra, however small)

Other ways we OP'd - 'extra' money - cashback, flebay, car boot sales, nearly new sales, facebook sales - all rounded up to the next £5 and paid off. Also saved £2 coins and anything 20p or less and paid these directly off the mortgage. All of this was an easy way to make (small and irregular) OPs without noticing any difference. We also moved from a fixed rate to SVR at some point (maybe 7 years in to living here?) and kept it there as it worked well for us by then.

OH's current account (at Ll) has a 'save the change' facility - if you use your debit card it will sweep the extra to a savings account to round the transaction up - so a debit card transaction of £6.25 will mean a 75p sweep to the savings account. I used to then round these up and pay them off the mortgage at the end of the month - usually anywhere between £10 - £20.

When we first got our mortgage, we had a think about whether to get a 5 year fix, or a lower 2 year fix. My boss at the time said to me something along the lines of that interest rates wouldn't go through the roof in 2 years. We could pay what we would on a 5 year fix for 2 years, and LTV would be lower when we came to re-mortgage, so we would likely get a similar rate, even if rates did rise. So that's what we did. Put the extra £150 a month that we'd have paid in interest on the 5 year fix and when it came time to re-mortgage, interest rates had actually dropped, our LTV was better too, and we then took a 5 year fix (which we chose to do, as I was looking to change jobs and wanted to reduce financial uncertainty) at about the same rate as our 2 year had been, but because of the reduced balance, our payments were about £50 a month less, so now we overpay £200 a month.

Sometimes we put a but more in, but there's no real strategy behind that...

It can be a bit of everything surely, whatever suits you at the time?

When there's a surplus in my monthly budget, I like to increase my DD by a set amount.

When I have 'spends' money left at the end of the month, I sometimes like to OP that.

When I get money from cashback sites or bank account perks, or selling things... I might have a takeaway....or I might OP it.

kev2009 wrote: »

Just to clarify, if your on a fixed rate and make a over payment, the following month does the usual amount come out or has the monthly amount reduced a bit due to the over payment?

it should depend a bit from your bank and product. For instance, mine doesn't count OP towards payment holidays and doesn't reduce the monthly amount unless I overpay more than 1k in one instalment

I agree Retter, I prefer whole numbers also but at the moment, I've left my standard payments at what they have set it to as being my first home i have purchased, I've had other expenses etc so hence no over payments to date, i just let it run its course as they wanted it to.

Interesting to read that you can set the DD to be a certain amount each month, i thought the bank altered the DD to the new required payment and then you had to then make an additional payment each month, i might see if they will leave my DD as is then

I'm with Santander and I can overpay 10% of the outstanding amount each year. If i pay any more then I get hit with a charge. My aim is to try offset any potential interest rate rises as much as possible

I am leaning on the side of reducing Monthly payment rather than term at the moment, might then change to reduce the term after my next 5 years, will have to review closer to that time.

kev