Mortgage Overpayment Strategy?

Mr_Curious · 4 May 2018 at 6:53AM

Hi Guys,

What with so many different thoughts an opinions over a huge number of different form posts/blog style entries, I thought I'd try to get some concise ideas for over paying the mortgage. What strategy do you use? Do you 'sweep' certain amounts of 'change' to the mortgage on a daily/weekly basis? Do you work overtime/earn a bonus and pt all of this to the mortgage religiously? Do you make a set payment every month? And if so how did you get to that figure? Do you make an over payment to 'pay off' the added interest when indeed it is added?

Clearly there are so many different options and opinions. What are your thoughts on things?

bexster1975 · 4 May 2018 at 9:47AM

I always OP'd what I could. This was only £50 a month to begin. Wage rises, reducing the cost of utilities/insurance etc just went into the OP pot. Cleared in just under 12 years. I offset a large amount so it was " clear" before then as I made more on savings interest than I laid in mortgage interest. There is no one right way. Some people are more aggressive and live what some might think a meagre existence until it is cleared. That didn't appeal to me. Others just pay a bit more ( Tilly's Tidies -TT) and that makes quite a substantial difference, plus if you ever need a payment holiday the OPs, even if small over several years, will likely gave bought you a few months breathing space.

Not sure what your position is, but good luck to you if you currently have a mortgage you want to OP.

Bexster

JennyP · 4 May 2018 at 9:48AM

I'm limited on mine (two buy to let mortgages) by how much I can pay (10% of original amount per year). So that was first starting point: to pay maximum allowed.

I will clear one this summer. The other has 4 years left on the fix. I thought wouldn't it be good to clear it at the end of the fix so I calculated how much that would be. It means saving an extra £506 a month, using some of that each year to pay the 10% maximum allowed, then there should be £10k left in the pot which will clear it in five years time.

I can just about find £506 a month extra if I am frugal once the first mortgage is cleared in the summer as I'll be £323 a month better off. In the meantime, any extra cash I can raise eg topcashback and eBay sales are going in the pot.

Urbanshyne · 4 May 2018 at 8:49PM

My strategy developed over a few months last year. To start with, I reckoned I could easily over pay £500 a month with a few changes to my spending habits. Once I'd really examined my finances, though, that quickly escalated into £1000 a month, then £1250 a month. It's the strategy of financial masochism, I guess and I wouldn't recommend it to anyone. I've pared my spending down to the absolute minimum, and recently that's been taking it's toll. A change in employer in the past few months has seen my pay packet go down, making the mortgage OP a much more difficult beast to feed. But I'm determined, I really am. I want to see this mortgage out of my life, and hopefully so by the first half of 2021.

kev2009 · 4 May 2018 at 10:35PM

I've been considering over payments recently. I am currently in a 5 year fixed which ends in 2020 and I've not been able to make any over payments yet as I moved into the place in 2015 and being single with only 1 income doesn't leave too much spare money around so I've been using what I can save to build up some savings.

I'm currently planing to try and overpay next year and the year after to hopefully reduce any impact interest rate rises may have. However, i'm unsure how to proceed with them, as in, should i reduce the monthly amount i pay and then make an additional payment each month to make the total what I have been paying each month OR should i reduce the term.

I have a spreadsheet i downloaded from the forum a while back and working on interest rates being 4%, if my over payments knocked off 5 years, the remaining mortgage on a fixed rate at 4% would see my monthly payments increase by approx £50. However, If i keep the term the same and let the monthly payment reduce BUT make a over payment each month to bring it up to the same amount I was paying before over payments, when i want to take another 5 year fixed, the monthly payments will still be less than I pay now and that's assuming 4% interest rate so i'm kind of leaning towards this. However, every month i make the additional over payment means the following month i'll be finding a bit more as it will reduce what i pay etc so i'm partly thinking is it worth it to keep messing around each month? I'd sooner say to the bank keep the term the same and take out the same amount each month that I have been paying, albeit i know the amount will be the monthly repayment + a over payment.

This is my first mortgage so i'm kinda learning as i go. Be interesting to see what others strategies are.

Thanks

Kev

NorthernPeach · 4 May 2018 at 10:53PM

Hi Kev,

I currently have a small regular overpayment which has creeped up over the last 12 months as we have felt comfortable with the amount or feel we wouldn't miss it. Regular OP's are a good method if you comfortable with overpaying a minimum every month but if you were having a 'short' month they do still count as your mortgage payment i.e. less flexibility. You would probably need to inform your mortgage provider in advance to stop the OP's. Finding an amount I would round up to your nearest 10/20/50/100/1000 etc. I'd recommend starting small then adjusting over time.

In addition to this I try and tidy or send any money I wouldn't have otherwise had across; surveys, interest, ebay, loose change jars etc. This doesn't amount to much but it's all money I wont have to earn interest on again!

Good luck with whatever you decide

kuratowski · 5 May 2018 at 9:30AM

My own strategy is to make regular overpayments by standing order, same amount every month, but I intend to ratchet up the amount whenever my pay increases. Very much the same approach I am taking to building up my pension, therefore. The actual cash split between pension payments and mortgage overpayments is about 2-1, however taking into account tax relief the cost to me is more like 1-1. If everything stays the same I should be both mortgage free and able to retire comfortably at 55 (15 years' time). However, I'm not truly expecting everything to stay the same!!

Sir_Robin · 5 May 2018 at 11:53AM

Hi kev2009 I'm in the same position as you. I opted for £300 overpayments a month via dd instead of saving as the mortgage interest is higher than any savings account(excluding stocks & shares icer)

The chart said OPs would basically half my term and save like 15k in interest, however I think I stretched too far as I'm now living on cheap meals with no slack to do anything :rotfl:

I opted for the OPs to reduce the term rather than monthly payments as I read somewhere that would save interest. I am having my doubts as to whether it was the right call though!

Im thinking having it reduce the base payments and then offsetting the reduced payments with extra OPs would be best of both worlds, you'd be paying the same amount off but with the added flexibility to pay less in an emergency as the mandatory base payments are lower.

As you say the downside would be the hassle of increasing OPs to offset the reduction in base payments but if that's the only downside then it might be a price worth paying for the flexibility.

Anybody else have any thoughts on this ?

kev2009 · 5 May 2018 at 8:29PM

Thanks Northern Peach - I might do that but i prefer to build up some money for OP and then towards end of year if i'm certain i wont suddenly need it then I plan to OP. At the moment i'm allowed to OP 10% so i'm working towards 10% for next year is my plan if i can. But i'll only overpay it IF i'm as certain as i can be that I wont need the money int he near future.

Yes, I agree Sir_Robin. IF i make my over payment next year, I think my monthly payment would reduce by approx £50 so, Can I tell my mortgage company to take the same amount each month, even though they should be taking £50 less OR do they take £50 less and then each month I need to manually pay £50 and then next month £50.xx as the OP will mean each month i overpay, it will mean increasing my next months OP by a few pence to keep the total the same as i was paying?

The more I think about it the more this sounds the better way to go as IF something happens i can stop the OP and just let the base money go out and then re-start OP when i can. In 2020 I plan to pay another OP by which will reduce my base payments by 30 or 40 quid a month (as a guess). This is what i'm hoping will help offset the interest rate rise.

As mentioned if i put in what my mortgage will be in 2020 and base it over 20 years and then 25 years both based on a 4% interest rate, if i do 20 years not only have I paid a fair amount in OP, my base mortgage goes up approx £50 which kinda seems whats the point if i'm still going to have to find another £50 each month? BUT if based over 25 years, it reduces by around £20-25 I think it was which is ideal as I can either 1) top that up each month to what i was paying OR 2) Keep that money aside and then overpay a larger sum when I've build up the cash over the year and am certain I don't need it. Which would also feel like a win as interest rates went to 4% but it was still cheaper than i was paying now so would feel like a great relief. All hypothetical of course as no one knows what interest rates would be, personally i'm working on 4% as worse case any ideally they would be no more than 3% which would help immensely.

Future plan is to fix for 5 years in 2020 and then may a over payment each year and then after than 5 year fixed period, see where I am and re-asses then.

Unfortunately for me, I moved in at the later part of the year so it means alot of my yearly bills come out shortly before xmas so kinda makes xmas not so good in terms of money as it just feels like suddenly i'm spending money left right and centre on insurance etc as well as xmas presents.

Kev

Retter · 6 May 2018 at 11:22PM

I have read a lot of stuff on here and taken the bits I like from it. I have a 10% overpayment allowance per year and am making an effort to do that. My current strategy is to pay £1000 off the capital every month which takes a £500 payment plus around £640 overpayment. I try to make it to payday with £500 in my current account which gives me the bulk of the overpayment. I am constantly debating whether to pay the full annual overpayment allowance in one go and spend the rest of the year building up my savings pot again. I have 9 years to run on my fix and will clear the mortgage by the end of it. As time passes and the balance reduces the amount I can overpay without penalty will reduce so I tell myself that although it!!!8217;s tough now its going to get easier. Good luck.

kev2009 · 7 May 2018 at 8:25PM

Are you reducing your term or monthly payments Retter?

Kev

Mortgage Overpayment Strategy?

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