Evolution Stu

iTrader: (2)

Hi guys,
Been thinking of overpaying my mortgage by around £150 per month for a couple of years now I have secured a fixed rate.

Can anyone on here advise what sort of long term benefit that has, as the Halifax, amazingly enough, will not give out "Financial Advice" Can you believe that?

Is it eseesntially just 24 x £150 off the bottom line that I owe them, so therefore when I look at a new product in 2 years time the amount outstanding will be £3600 less than it would be had I not done it, and therefore my value to Loan ratio will look higher too, thus potentially securing me a lower rate on renewal?

Or is it more complex than that somehow?
My mortgage allows overpayments of up to 10% per annum without penalty.

Steve vRS

The other advantages are that the amount of interest you pay will go down as the amount of capital is reduced so saving you more than just the amount you over pay.

Also, if (when) the interest rate goes up and then your payments follow (when the fixed deal ends) you have budgeted for the increased outgoings already and so there is less financial shock!

Steve

Neanderthal

iTrader: (6)

More complex than that, you are taking it off the amount you owe which in turn reduces the overall interest you pay.
In basic terms, if you can afford to over pay, then do it cause you'll clear the mortgage off sooner.

hodgy0_2

the benefit you get also depends on when/how the building society calculate the interest on the outstanding loan

sometime you are better to put the over payment in an interest bearing account and then transfer a lump sum

RobsyUK

iTrader: (2)

when you got the morgage did they not say it's X amount a month? If I was over paying, from day one I would have realised.

Will

Eh??

Scooby Soon!

over paying makes a massive differance! I am over paying the maximum nationwide allow (£500mth) and have been for 2 years, I am 4 and a half years in to my 35year mortgage but because of the over payments I have just over 20 years left, with a bit of juggerling I hope to have the mortgage dont and dusted in another 5 years all things being well and If I can resist the urge to move...

the way I see it if you are paying £1000 a month only about £150 of that is being taken off what you owe (the £850 going in interest) so If you can over pay by £150 you are paying off the actual amount you borrowed twice as quick.

max1342

dont you also have to choose what the money effects?

1. reduce the term of the mortgage

or

2. reduce the repayments per month

if given the option which one is best to choose as I dont think you can do both

classic Subaru Si

Oh dear.... Overpaying your mortgage isn't some banking fiddle that see's you being ripped off, it's set up by yourself to pay it off sooner

hodgy0_2

that is a good strategy IF you don't move, once you do, then I 'm not so sure it stacks up tbh (assuming you have equity in the property)

you are paying off your mortgage (the capital) but you are doing it with taxed income, not sure this is a very efficient way of doing it - I have paid of quite a few mortgages, but have always done so with the tax free capital gain, on the sale of the property

PaulC72

Stu, overpaying if you can is a good thing, Halifax will also take a one off lump sum '10%' overpayment which is the way we prefer to do it when overpaying.

The benefits of overpaying are less interest and reduced payments giving or reducing the overall term and keeping payment the same.

markjmd

iTrader: (11)

In pure financial terms you're definitely better off with option 1, but if it suits your purposes for other reasons (having more ready-cash available, basically) then you might prefer 2. Most banks will assume you're 'choosing' option 2 when you make any lump-sum overpayment though, unless you tell them otherwise.

njkmrs

The only mistake you have made is thinking about it for the last couple of years!
Get on with it Son!!
Pay Down ,Pay Down,Pay Down that Mortgage!

vindaloo

A number of reasons for it:
- reduce the total interest paid.
- reduce the term of the mortgage.
- engineer an enhanced "redraw" facility whereby you may be able to use the mortgage "headroom" rather than take out a separate loan.

Reasons not to do it:
- Mortgages can be very cheap at the moment, you might do better to save/invest if you can reliably beat the interest rate.
- if they become "scheming sh*ts" and want amendment fees or similarly bizzare extra dosh off you to change any aspects of your arrangements or payments.

As for the specific effect of the overpayment. Depends on the way interest is calculated on the mortgage. Though it's more likely to be like "compound interest". In this case, more like compound benefit/reducing the capital outstanding by more than the base £3600.

Without knowing the specifics it's hard to be accurate but assuming a 3% interest rate, I'd make the benefit more like £3820 (3% PA compounded over 24 months).

J.

lordharding

iTrader: (1)

Do it and I would recommend even more then £150 if you can
In my days when I was a bit boy a d interest rates were a whopping 11% my mortgage was £290 andi paid £500 a month of it and cleared a 25 year mortgage in just over 12 years with a couple of lump sums and if I had not the money would of be squandered on booze and hookers and I would of wasted the rest and still had a mortgage

This has been discussed on scoobynet before but the advantages of paying off a mortgage means when your 40/50 to be debt free is a fantastic and it's amazing how your bank account grows after the mortgage is paid off or greatly reduced that's why there is so many blokes in the fifties driving sports cars and riding harley davidsons and have money to burn

Being tight ,mangeing your money and paying it off quickly has its dividends in the end
And with so much job uncertainty in the future with europe going bankrupt gradually and uk will follow in the future the way the governments are spending money they haven't got we are all going to struggle when we are older

As my old father says
"Have plenty put by you and you will be ok when times get tough ""
Is very true in today's economic climate and it will get worse so get the debts paid off ASAP

Evolution Stu

iTrader: (2)

Thanks guys, really appreciate youtr time and help. Will give them a call today and set up an overpayment scheme.

I havent mate, my opening post wasnt as clear as it could be perhaps, I plan to overpay it for at least a couple of years as of 1st June. Until my rate drops to the base on 1st of June I am still paying £1200 per month so cant stretch to an overpayment, but as my fixed rate ends the monthly fee is dropping about £150 per month so I plan to keep the payments the same since I wont miss it.

^Qwerty^

I'm overpaying with the Yorkshire Bank. They work two ways:
1) you can make random over payments and they will be credited to the account once every twelve months
2) you can make regular over payments and these are taken in to account straight away, thus reducing both the capital and interest owed.

I've gone with option 2

ChrisB

That's what I've been doing Stu. When the interest rates nose dived a few years, I kept the payment the same rather than let it drop. I think the last statement I had said I'd shaved 6 or 7 years off the term

njkmrs

Well in that case your not a "c*ck !!"
You are doing the right thing and hopefully you have been persuaded that its the right thing to do .!!

pslewis

Best thing I ever did was to take out a Flexible Mortgage about 17 years ago when they first came out ........ paid the mortgage off within 9 1/2 years, would have been sooner but I bought the Scooby on it!

Whatever the interest rate is that you are paying, that is effectively what your money is paying you in interest TAX FREE!! Saving 45% on your savings interest!

It's a no brainer!