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  • FIRST POST
    • Mr_Curious
    • By Mr_Curious 4th May 18, 6:53 AM
    • 93Posts
    • 32Thanks
    Mr_Curious
    Mortgage Overpayment Strategy?
    • #1
    • 4th May 18, 6:53 AM
    Mortgage Overpayment Strategy? 4th May 18 at 6:53 AM
    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?
Page 1
    • bexster1975
    • By bexster1975 4th May 18, 9:47 AM
    • 1,216 Posts
    • 5,716 Thanks
    bexster1975
    • #2
    • 4th May 18, 9:47 AM
    • #2
    • 4th May 18, 9:47 AM
    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
    Last edited by bexster1975; 04-05-2018 at 10:45 AM.
    • JennyP
    • By JennyP 4th May 18, 9:48 AM
    • 934 Posts
    • 691 Thanks
    JennyP
    • #3
    • 4th May 18, 9:48 AM
    • #3
    • 4th May 18, 9:48 AM
    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
    • By Urbanshyne 4th May 18, 8:49 PM
    • 43 Posts
    • 181 Thanks
    Urbanshyne
    • #4
    • 4th May 18, 8:49 PM
    • #4
    • 4th May 18, 8:49 PM
    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.
    Neither a borrower or lender be; for loan oft loses both itself and friend.
    • kev2009
    • By kev2009 4th May 18, 10:35 PM
    • 232 Posts
    • 316 Thanks
    kev2009
    • #5
    • 4th May 18, 10:35 PM
    • #5
    • 4th May 18, 10:35 PM
    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
    Last edited by kev2009; 04-05-2018 at 10:39 PM.
    • NorthernPeach
    • By NorthernPeach 4th May 18, 10:53 PM
    • 46 Posts
    • 128 Thanks
    NorthernPeach
    • #6
    • 4th May 18, 10:53 PM
    • #6
    • 4th May 18, 10:53 PM
    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
    OP's 2018 = £447.83 / £1000 Emergency fund = £353.47 / £1000
    Target 1: £367.63 / £2471.97 Pay off first 10k of capital!
    • kuratowski
    • By kuratowski 5th May 18, 9:30 AM
    • 45 Posts
    • 65 Thanks
    kuratowski
    • #7
    • 5th May 18, 9:30 AM
    • #7
    • 5th May 18, 9:30 AM
    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
    • By Sir_Robin 5th May 18, 11:53 AM
    • 29 Posts
    • 36 Thanks
    Sir_Robin
    • #8
    • 5th May 18, 11:53 AM
    • #8
    • 5th May 18, 11:53 AM
    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

    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
    • By kev2009 5th May 18, 8:29 PM
    • 232 Posts
    • 316 Thanks
    kev2009
    • #9
    • 5th May 18, 8:29 PM
    • #9
    • 5th May 18, 8:29 PM
    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
    • By Retter 6th May 18, 11:22 PM
    • 11 Posts
    • 10 Thanks
    Retter
    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
    • By kev2009 7th May 18, 8:25 PM
    • 232 Posts
    • 316 Thanks
    kev2009
    Are you reducing your term or monthly payments Retter?

    Kev
    • greent
    • By greent 8th May 18, 9:50 AM
    • 7,153 Posts
    • 72,815 Thanks
    greent
    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.
    I am the master of my fate; I am the captain of my soul
    Repaid mtge early (orig 11/25) 01/09 £124616 01/10 £104927 01/11 £89873 01/12 £76317 01/13 £52546 01/14 £35356 01/15 £12133 07/15 £NIL
    BTL Mtge 12/16 £69786. 2018 OPs (#18) £2772.47/£4000
    Net sales 2018 £558.92/£1000 PAYDOX18 (#15) Done £18918.90
    • Aliliva
    • By Aliliva 8th May 18, 11:01 AM
    • 145 Posts
    • 415 Thanks
    Aliliva
    I'm doing a combination of the approaches above, mainly because I just started my mortgage journey and haven't figured out which one is the best approach for my circumstances
    Basically, I'm rounding up my payment to the nearest hundreds, paying half of my OT/bonus/any unexpected lump of money, and rounding down my accounts to the next 00s once a week, moving the spare change to the mortgage.

    I'm not sure this mix and match approach is very sensible, and I'm probably not OP-ing as much as I could, but I'm trying to keep on living a good live (carpe diem and so on), saving for a new kitchen, re-building my emergency pot to a nice 6 months expenditures level, keeping 1k stashed away for service charge at the end of the year, and probably some more I just hope my mortgage is lower than 60% LTV by the time the fix is over and interest rates are higher
    MFW #34 £1423/£2000
    71.2%done, 28.8% to go

    Virgin CC to pay by 30 June 2018
    Barclaycard to clear by May 2018 done
    JL CC to pay by 1 Dec 2018
    • helibob
    • By helibob 8th May 18, 11:06 AM
    • 38 Posts
    • 116 Thanks
    helibob
    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...
    • kev2009
    • By kev2009 8th May 18, 6:11 PM
    • 232 Posts
    • 316 Thanks
    kev2009
    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? I can overpay 10% a year but i'm finding on my spreadsheet that if i overpay say £50 a month and then towards end of the year want to pay a larger sum as a one off lump sum, I presume i calculate it as (x amount owing * 10%)- all £50 a month payments so as not to go over my 10% cap each year right?

    Reason I ask is I initially set my spreadsheet to keep everything the same and it lowered the term so it gave me a figure in mind of what i'd have at the end of my 5 year fixed rate mortgage BUT if i change it to reduce Monthly amount then the figure increases by approx £600 even though i'm paying of £50 each month and then a lump sum to make the total over payment 10% for last 2 years of mortgage. Not the end of the world but i kinda had my mind set on the figure i initially though i'd be at. This obviously then increase what i would be at at the end of my next 5 year fixed which works out at approx 5k more than i'd of hoped so I might need to re-look at this at some point. Not to mention different calculators/spreadsheet give me different answers...

    I prefer to make a one of lump sum payment each year as that way i keep the money to hand and if something happens, i can use that money to tied me over etc as if i over pay and then loose my job, and i tell the mortgage company they wont care what I've over paid they still want there monthly payment.

    Kev
    • turtlemoose
    • By turtlemoose 8th May 18, 10:31 PM
    • 1,530 Posts
    • 4,446 Thanks
    turtlemoose
    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.
    • Mr_Curious
    • By Mr_Curious 9th May 18, 8:35 AM
    • 93 Posts
    • 32 Thanks
    Mr_Curious
    Thanks all. Some really interesting experiences here
    • Aliliva
    • By Aliliva 9th May 18, 9:38 AM
    • 145 Posts
    • 415 Thanks
    Aliliva
    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?
    Originally posted by kev2009
    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
    MFW #34 £1423/£2000
    71.2%done, 28.8% to go

    Virgin CC to pay by 30 June 2018
    Barclaycard to clear by May 2018 done
    JL CC to pay by 1 Dec 2018
    • Retter
    • By Retter 9th May 18, 1:08 PM
    • 11 Posts
    • 10 Thanks
    Retter
    Are you reducing your term or monthly payments Retter?

    Kev
    Originally posted by kev2009
    Term. My standard payment started at £481 and I asked them to round it up to £500 (a fan of round numbers) and I just make the overpayments to reduce the total as much as I want, or feel comfortable with. At the minute Iím making every effort to reduce the balance by £1000 p/m but if Iím struggling a bit I will just pay the monthly interest as an overpayment. My minimum payment is down around £440 now but as I say, I have asked the lender to take £500.

    Someone on here talked about round numbers and I have really taken that on board. I find having 0, 00 or 000 at the end of my balance very helpful.
    • kev2009
    • By kev2009 9th May 18, 8:47 PM
    • 232 Posts
    • 316 Thanks
    kev2009
    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
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