mortage overpayments?

[Sysman]

Do a google for a mortgage overpayment calculator, a little now makes a huge difference at the end even when rates are low. It is quite surprising what 100 quid extra a month can do. Give it a go and see.

I did this many years ago when the rates dropped and MIRAS came in. I was paying by standing order and simply left it as it was. I was genuinely surprised how much equity I had gained when I sold the place.

Another thing I recall from that era was my boss putting in a lump sum just before the end of the year (or was it financial year?). I don't know if this one works any more, but the building society were only interested in the balance at year end, and calculated interest from that point of view. I.e. if you are going to put a lump sum in, stick it in a savings account until the building society's year end.

From the other side of things, you could negotiate to reduce your monthly payments and as long as you settled up before the year end there was no financial penalty. As I said, I don't know if this one still works.

A lot of people are giving up on pensions and overpaying mortgate so they are free of debt when they retire instead of gambling on a crap return from the pension.

Can you draw down if you over pay? If so double bonus.

Not the case for the OP, but I'll mention this for others who are close to being able to pay the lot off. A wise old chap I used to know got his mortgage down to the point where he could have paid it off from petty cash. Why didn't he pay it off? Simple, with a good payment track record and over 95% equity in his house, getting a loan for new kitchen/car/new roof would be granted pretty automatically by increasing his mortgage. Cheaper than taking out a personal loan with the bank and no credit checks to go through either.

I would say fill your boots as soon as possible. Even if the rates are low and may not seem worth it now you will be quids in when they start going up again. Once they are up it is too late.

True. As I said above, the sum that hit the bank when I sold my house was a pleasant and genuine surprise.

[marple]

Just got a years contract so upped my mortgage to from £1,000.00 to £1,900 a month, I want to get shut of it ASAP.

[filthy1980]

Just got a years contract so upped my mortgage to from £1,000.00 to £1,900 a month, I want to get shut of it ASAP.

wouldn't you be better off paying off a £10800 lump sum at the end of the year rather then increasing the repayments

the lump sum would mean you are paying less in interest over the course of the mortgage no?

or does it work out the same . . . .just thinking out loud haven't thought it through

[Scrag Meister]

Offset mortgage like the last poster said sounds the best - don't let the warchest get too low...its still tough out there

Offset mortgage is a great idea, like a savings account paying the same rate as the mortgage. Means you can get at the cash if you need it for warchest topup. Won't reduce the main payments though.

wouldn't you be better off paying off a £10800 lump sum at the end of the year rather then increasing the repayments

the lump sum would mean you are paying less in interest over the course of the mortgage no?

or does it work out the same . . . .just thinking out loud haven't thought it through

He's better off paying it monthly as he doesn't pay the interest on the increasing overpayment for the whole of the year.

£900 paid in now is worth £900 + 1 years interest by next October, more than saving and paying the money next October, unless you have a savings account paying the same rate and put the whole lot in next October and then there is no difference.

[dynamicsaxcontractor]

Why not get an offset mortgage, that way you get the benefit of reducing your mortgage but the option to access the funds if you need to.

Offset mortgages is the way for contractors. Just keep your warchest in your offset account until you have enough money to get rid of the mortgage competely.

[northernladuk]

wouldn't you be better off paying off a £10800 lump sum at the end of the year rather then increasing the repayments

the lump sum would mean you are paying less in interest over the course of the mortgage no?

or does it work out the same . . . .just thinking out loud haven't thought it through

I thought most of them did daily or monthly interest calculations now so the faster you get it in the less interest you pay month on month so showing quite a gain at the end rather than a lump sum. Could be different depending on what product you have though.

[Lumiere]

Offset mortgages is the way for contractors. Just keep your warchest in your offset account until you have enough money to get rid of the mortgage competely.

That was my understanding, but I did some calculations recently and it does not look so straight-forward any more.

E.g. if I have a £100K offset mortgage (25 years, 5%) and £50K offset warchest:

monthly repayment on £100K mortgage = £590
monthly interest on £50K savings @ 5% = £210
------------
payable to bank monthly £380

but if I transferred £50K from savings to mortgage account I would be paying £295 pcm

this is on a tiny £50K debt, the bigger is the net mortgage the bigger is the difference you "lose" every month

I am now thinking of overpaying the mortgage by the amount I will not need in the foreseeable future, so keeping all available money in the offset saving account till the end of the mortgage may not be a good idea(if my assumptions are correct, of course - I will be speaking to my bank about this soon)

[Sysman]

I am now thinking of overpaying the mortgage by the amount I will not need in the foreseeable future, so keeping all available money in the offset saving account till the end of the mortgage may not be a good idea(if my assumptions are correct, of course - I will be speaking to my bank about this soon)

Another point I recall from when I had overpaid was that the building society would have been quite willing to let me reduce payments until I got the balance back up to the original amount. In fact they suggested that I went onto a direct debit and they'd do this for me. Nope, I didn't want to do that, but it could have been handy had I needed to reduce my outlay at short notice to cope with some unexpected large expense.

Do speak to the bank and see what your options are, but remember that it is probably in their best interests to keep your mortgage balance high.

[lukemg]

Another vote for an offset – if you usually have a surplus but might need access to it in the future. With Woolwich you can choose to reduce the monthly payment by the interest saved each month but I just keep the payment the same (set to pay off in 17 years so overpaying already). As it’s a tracker too, mortgage is tumbling nicely and should be all done 15 years after I started it. Balance is also saying I can borrow 50k no questions asked due to amount I have paid off. I don’t need it but nice if I did.
This needs discipline though, if any balance tends to burn a hole until you spend it, then might not be the best choice, especially with availability to borrow extra you could be paying this off forever !

[downsouth]

another vote for the offset, mines with the oneaccount, just one huge overdraft facility really, no seperate pots/accounts hence the name

You have a standard repayment date as per all mortgages, then you can set up 'plans' for repayment, just 'makes' an overpayment into the mortgage repayment plan. just put all your income into the account every month and jobs a good un

Best mortgage product for me showing a current 'repayment' date of Feb 2011, so 5 years from start, but wont be paying it off as i'll be keeping the cash available for the official repayment date of 2032