sishyplops Posted September 7, 2015 Report Share Posted September 7, 2015 Hi all, I'm now in a position to make a regular overpayment on my mortgage, it's still got 14 years left to run and I overpay £125 a month, I asked why a lump sum I paid (£1k) had made no difference to my monthly cost even however small it would have been and was told by the chat person that amounts under the equvelant to 3 months payment would come off the term not the monthly amount, also my overpayments will reduce the term,. So the question to those who may know is , is it better to have this come off the term or the monthly amount ie is there any advantage to either or is it all academic Thanks in advance Quote Link to comment Share on other sites More sharing options...
Duckandswing Posted September 7, 2015 Report Share Posted September 7, 2015 Reduce the term. Ultimately you save more. Quote Link to comment Share on other sites More sharing options...
Rupert Posted September 7, 2015 Report Share Posted September 7, 2015 (edited) Its a great idea, just remember you cant buy anything at Asda with equity. Reduce term.as this in turn reduces the amount of interest you pay to the bank. Edited September 7, 2015 by Rupert Quote Link to comment Share on other sites More sharing options...
markm Posted September 7, 2015 Report Share Posted September 7, 2015 Making overpayments on your mortgage is a great idea. It is one of the most sensible financial decisions the boss and I made. When ever we went on holiday, what cash we had left went straight off the mortgage, when we had any cash left at the end of a month, we paid it off, when childcare finished when the kids started school full time, we didn't cash in, but used the money to make over payments. I don't have a mortgage. First house bought age 26 and all paid off by 40! Quote Link to comment Share on other sites More sharing options...
Dougy Posted September 7, 2015 Report Share Posted September 7, 2015 Over pay. I am knocking 6 years off my mortgage. No mortgage party time. Treating myself to something special. Quote Link to comment Share on other sites More sharing options...
AVB Posted September 7, 2015 Report Share Posted September 7, 2015 What they all said. If you reduce your monthly payment to compensate then you are not overpaying! Quote Link to comment Share on other sites More sharing options...
walshie Posted September 7, 2015 Report Share Posted September 7, 2015 Darling, what's a mortgage? Quote Link to comment Share on other sites More sharing options...
Carman06 Posted September 7, 2015 Report Share Posted September 7, 2015 Try this calculator it should help you to play around and see the difference little changes can make. https://www.dropbox.com/s/apfprlb4agq64nb/Copy%20of%20MortgageOverpayments.xls?dl=0 Quote Link to comment Share on other sites More sharing options...
Mungler Posted September 7, 2015 Report Share Posted September 7, 2015 (edited) It's a heady mix of stability of income, interest rates, property prices and risk. A few years ago I had the choice of paying down an existing mortgage or taking that extra money and rolling it into buy to lets - firstly because I saw pent up demand in the market and secondly because no one makes any money in one / their own property because you can't sell it, you have to live in it. Paying down borrowings when borrowing is at an all time low interest rate wise doesn't make sense. Yes I appreciate rates can go up but you can fix at f-all for 5 years. Another example I put a client onto a commercial lend of £100k at 16% pa for 1 year with an option to go to 2 and with decent (charged) security. That is getting redeemed this month and the client is netting a cool £30k (22 months borrowed). That's far better use of money. The client had the cash on hip, but even if he had borrowed the money at 5% he'd make £20k splitting the difference. £150 a month could get you £50,000 (ball park) interest only. Is there something you could do with £50,000 that could spin you a better return than the interest rate on your mortgage? Edited September 7, 2015 by Mungler Quote Link to comment Share on other sites More sharing options...
lord_seagrave Posted September 8, 2015 Report Share Posted September 8, 2015 It's a heady mix of stability of income, interest rates, property prices and risk. A few years ago I had the choice of paying down an existing mortgage or taking that extra money and rolling it into buy to lets - firstly because I saw pent up demand in the market and secondly because no one makes any money in one / their own property because you can't sell it, you have to live in it. Paying down borrowings when borrowing is at an all time low interest rate wise doesn't make sense. Yes I appreciate rates can go up but you can fix at f-all for 5 years. Another example I put a client onto a commercial lend of £100k at 16% pa for 1 year with an option to go to 2 and with decent (charged) security. That is getting redeemed this month and the client is netting a cool £30k (22 months borrowed). That's far better use of money. The client had the cash on hip, but even if he had borrowed the money at 5% he'd make £20k splitting the difference. £150 a month could get you £50,000 (ball park) interest only. Is there something you could do with £50,000 that could spin you a better return than the interest rate on your mortgage? As with the threads on inheritance, you've got to take a rather morbid view on some of these bigger personal finance questions. It's all very well being rich in assets, but, as someone said earlier in this thread, equity doesn't pay the bills. Mungler makes a good point, and you could certainly make that money work harder. We're about to do the same - remortgaging an existing property to enable us to use the equity (and the remains of the existing mortgage) on a cheapy little flat elsewhere in town. You can't take it with you. BUT, if the thought of owning your own home is making you moist, then go for it. LS Quote Link to comment Share on other sites More sharing options...
Dougy Posted September 8, 2015 Report Share Posted September 8, 2015 I am paying off early for the very simple reason, I do not intend on "needing" to work when and how long my outgoings decide. My (and like many others) there mortgage will be there biggest monthly bill. I owe nothing to anyone, including credit cards, finance (apart from my bins) apart from my mortgage, once thats gone I see it as everything I have is mine and, nobody can take it away. Quote Link to comment Share on other sites More sharing options...
AVB Posted September 8, 2015 Report Share Posted September 8, 2015 I agree with Dougy and was one of the reasons we moved to Norfolk. It means I don't have to work and if I do it is out of choice not necessity. What Mungler says is correct but it depends on what your objective is. If you want get the best returns then using the capital for other investments makes sense. However, if you want the emotional comfort of not having a mortgage then it doesn't. Quote Link to comment Share on other sites More sharing options...
Mungler Posted September 8, 2015 Report Share Posted September 8, 2015 It's a juggle and you have to have the mind set for it. I am actually quite risk adverse when it comes to lumps of money and the only reason I got involved in property was because of low and fixed interest rates - you know exactly where you are for 5 years. In the South East, it's all about capital appreciation. Quote Link to comment Share on other sites More sharing options...
Del T Posted September 8, 2015 Report Share Posted September 8, 2015 The wife and I overpayed from day one of our 25 year mortgage. Even small amounts make a huge difference. There was a limit on our mortgage on what we could overpay , if we were under the limit we would top it up to hit the limit. It was hard going being a young ish couple on pretty poor wages but we managed to get rid of it in 10 years with my wife being 30 it was a thing we were proud of. Quote Link to comment Share on other sites More sharing options...
al4x Posted September 8, 2015 Report Share Posted September 8, 2015 The curve ball is an offset mortgage, keeps the cash available while reducing either repayment or term depending how it is set up. We have enough to nearly pay off the mortgage I a savings account which offsets our mortgage interest. I kept repayments the same so am effectively overpaying. When we want to move house we will look at things but it means we will have more cash available so may not need to extend the mortgage etc. if we don't move we have the money to put into another buy to let. In the meantime the interest we are charged is about £20 a month and we effectively don't pay tax on savings as it in theory doesn't pay interest Quote Link to comment Share on other sites More sharing options...
Archie-fox Posted September 8, 2015 Report Share Posted September 8, 2015 I over pay £100 per month on my house that I live in, I have 2 other houses now that I rent out with zero mortgages and I'm saving up the rent each month and I'll pay of my currant mortgage within 9 years.. Quote Link to comment Share on other sites More sharing options...
Mungler Posted September 8, 2015 Report Share Posted September 8, 2015 (edited) My business partner wants to move and he has been sensibly and busily saving up money. The problem is this - say in 2012 he had £165,000 in savings and was just accumulating money for the next leap on the property ladder. If he bought an investment property locally in 2012, £165,000 would have got him a 3 bed mid terrace rental property. Alternatively, 3 years bank / building society interest on £165,000 from 2012 to date would be what, maybe £15,000. Whereas that same 3 bed house is now £295,000 and delivers a rental income of £1200 per month, so like for like over the same period (and for ease of calculation ignoring tax) the property delivers up capital growth and rental of £130,000 plus £43,200 (a total of £173,200). So that's £15,000 -vs- £173,200 over the same 3 year period. Also, the same property that my partner wanted to buy and move into to live back in 2012 is now probably worth 25-40% more than when he was looking back in 2012. You can't chase that curve just by saving and paying down a mortgage early. Edited September 8, 2015 by Mungler Quote Link to comment Share on other sites More sharing options...
oowee Posted September 8, 2015 Report Share Posted September 8, 2015 So many options to consider. Tax rates, life plans, chance of divorce, pension, other investments and so on. It's nice to drop the mortgage but what else could you do? Every time I paid off my mortgage I found something else that would have been a better option. Even my daughter prefers student debt where finance is cheap rather than using her savings to pay for her course. Quote Link to comment Share on other sites More sharing options...
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