davyboy

Say you had two mortgage payments running.

135k on one (property)
15k on another (extra borrowing)

....and you have 8k to pay in, but can only do it £500 a month.

Is there any financial gain to be had by paying in to one and not the other? Or maybe you could pay £500 a month off of each, so £1000 a month?

Dave

douglasb

Pay into whichever has the higher interest rate is usually the best answer.

fast bloke

Every deal is different. Which lender is it?

davyboy

Nationwide.

pwhittle

I think there's a limit on overpayments of 10% of the debt pa, then you get stung for charges over that. If that's the case on your mortgage, you'd need to limit what you put into the smaller one

fast bloke

pwhittle - Nationwide has a limit of 500 per month then you pay ERC on the entire amount of overpayment.
Davyboy - if you want to PM me the deal you are in, the interest rate and term of the discount/tracker/fixed period and the highest rate of tax you pay I can let you know if you should pay 500 into each one every month or pay the entire 8k off in one go

T4molie

FB- what is ERC?

Dunk

iTrader: (1)

Early Repayment Charge

D

T4molie

Cheers Dunk

I'm with Nationwide as well and while I do overpay each month it's not by a massive amount - didn't realise I would pay ERC!!!

fast bloke

If you overpay by more than 500 per month you will pay a penalty of something between 1.5 and 3% of the total amount you overpay, so if you pay them an extra grand you pay a penalty of between 15 and 30 quid. The % depends on the term of the deal you are in

Clarebabes

Oh, we were not told about that.

logiclee

If you are not tied in then why not look at moving lenders and dropping the £8k straight off?

I'm with IF, there are no penalties for overpayment. I paid a lump sum off ealier this year and I'm overpaying by around £700 a month, the total overpayments rise each month as the interest falls.

Cheers
Lee

T4molie

I thought with Nationwide that you only got charged ERC if you overpaid by MORE than the allowed 500? I only overpay by 100 each month so thought I would be fine?

Sorry Davyboy not meaning to hijack your thread

If it was me then I would just over pay by the monthly allowed amount on the one that owed the most on

Andy

Suresh

Why excess overpayments attract ' charges' -


For the technically-minded, if a bank makes a mortgage loan it enters into a contract that also brings credit or default risk and also interest rate risk on the fixed rate that has been agreed. There are also administration costs of course.

Banks hedge the interest rate risk on mortgage loans that they make. Typically they cover the risk by buying interest rate swaps in the capital markets (bank will pay fixed / receive floating). The part that you are allowed to repay without penalty* will not be hedged in this way. Internally, banks will use a CPR (conditional prepayment rate) to determine what doesn't need to be hedged. If you repay over the allowed amount, the bank will need to unwind a hedge and will incur costs themselves. The amount of any fee for the bank will be the present value of the swap, computed by discounting contractual cash flows at prevailing market rates. They will then pass this fee on to you - and rightly so.

* read your contract

HTH

Nigel H

On a related to matter, I've been trying to work out what the effective rate of return on mortgage overpayments is. Any answers?

You clearly save the interest (so your rate of return will be the loan rate), but is there also some form of compunding saving as well, since you will repay the loan early? I think there is, but I couldn't find it anywhere when I searched.

logiclee

Exactly, there are good deals out there that allow unlimited overpayments without charge.

Shop around.

Cheers
Lee

logiclee

I did have a link to a site but I'm at work at the moment.

Other than a small float I pay every spare penny of the mortgage, at current rates I have three years left which will mean I'm paid up ten years early and I will also have paid up a small interest only mortgage so when the endowment matures in ten years the £35k-ish will be mine.
Not sure of the total saving and it depends on future interest rates as to what I would have paid but it will be around £60k interest

Cheers
Lee

fast bloke

If he wasn't tied in there would be no limit on the overpayment

T4molie - payments of less than 500 do no attract any charge, but over 500 you get charged on the full amount, so at 100 a month you wont have any charges

NigelH - I have one on my mortgage sourcing system. There is one at the link, but it is for offset accounts. If you mess about with the figures you can make it replicate a standard mortgage OpenPlan

T4molie

Suresh - thanks all becomes clear now

Fast Bloke - cheers also

Does anyone know of a web site that has a mortgage calculator whereby I could put in my outstanding amount, how much my monthly payments are and also how much I could shorten the repayment by overpaying?

Back to OP Davyboy - have you decided what you're gonna do yet?

RJMS

iTrader: (2)

Talking of offset mortgages, if you have one do consider the benefits of putting money into your offset account vs actual overpayments. With Standard Life if you want to borrow back any overpayments the process is more complicated and if you are on a discounted rate then you will not get that rate on any borrowed back overpayment.

Put the overpayment in your offset account and it's there for you to take back whenever you want it and will only cost the discounted rate if you do so.

I'm no expert but I would assume that whether any spare cash goes as an overpayment or into the offset account will not make any difference in terms of paying off the mortgage, it's just a lot easier to get back from the offset account.

Bakerman

Chaps RTFM.
The website is quite clear about the implications of overpaying.

falkster

I was thinking about starting a oneaccount mortgage but after talking to my current lender I can pay my mortgage off 13 years early by just overpaying my mortgage by £250 per month