Overpaying the mortgage: how does this work?
Discussion
I'm overpaying by £200 a month, but after some 15 months of that we are still paying exactly the same amount each month, whereas I was expecting to see it recalculated as the capitol shrank. I went to the bank, spoke to the C&G chappie, who didn't appear to know any more about it than I did, and he said the mortgage just gets shorter, paid off earlier, rather than decreases the monthly bill.
I meant to phone them up, see if I could get more sense out of a phone bod, but forgot, and now I'm offshore so I throw the problem to the great minds of PH.
Basically, I don't want to be better off by £600 a month in a far distant 16 years time, I'd rather save it now, pay less out each month, by paying more, see some results for my extra input, if that makes sense.
Mortgage is 5%, fixed for four more years.
I meant to phone them up, see if I could get more sense out of a phone bod, but forgot, and now I'm offshore so I throw the problem to the great minds of PH.
Basically, I don't want to be better off by £600 a month in a far distant 16 years time, I'd rather save it now, pay less out each month, by paying more, see some results for my extra input, if that makes sense.
Mortgage is 5%, fixed for four more years.
King Herald said:
Basically, I don't want to be better off by £600 a month in a far distant 16 years time, I'd rather save it now, pay less out each month, by paying more, see some results for my extra input, if that makes sense.
Mortgage is 5%, fixed for four more years.
If you want to be richer now, why are you overpaying the mortgage?Mortgage is 5%, fixed for four more years.
GreenV8S said:
King Herald said:
Basically, I don't want to be better off by £600 a month in a far distant 16 years time, I'd rather save it now, pay less out each month, by paying more, see some results for my extra input, if that makes sense.
Mortgage is 5%, fixed for four more years.
If you want to be richer now, why are you overpaying the mortgage?Mortgage is 5%, fixed for four more years.
In 15 years time £600 a month will be chump change, and will mean next to nothing when it is paid off.
Steve748 said:
shame on you for using the 'B' word 
You will find out at the end of the year how much you have paid off when you get the statement
Well, Lloyds TSB took over my mortgage company, so I'm stuck with it. You will find out at the end of the year how much you have paid off when you get the statement
We got the mortgage statement in February, and it says something about it being recalculated at the end of the year, but nothing seems to have changed, we still pay exactly the same amount each month.
King Herald said:
In 15 years time £600 a month will be chump change, and will mean next to nothing when it is paid off.
This is essentially why you can reduce the term of your mortgage by several years overpaying a little now. It's all swings and roundabouts - assuming everything else remains the same, whether you choose to reduce the term of your mortgage or reduce your monthly payments will not make much difference in the long term.FWIW, Nationwide allow you to choose whether to reduce the term or reduce your monthly payments - we've chosen to reduce the term.
King Herald said:
What I mean is I wanted the 'required' monthly payment amount to shrink, so I could increase the overpayments, or reduce them if necessary.
The only way I can see of doing that is to re-mortgage for a longer term/smaller monthly amount, and overpay to the sum you are now paying off.I have been through this with Nationwide. Effectively by overpaying by £200 each month and leaving your regular payments at the same amount, you are increasing your overpayment.
The regular monthly DD payment is split to reduce capital and interest (assuming that you have a repayment motrgage). By reducing the capital each month by £200, your regular payment overpays the required interest amount and the excess is put towards capital reduction.
Nationwide limit overpayments to £500 per month on a fixed rate mortgage; if you make this maximum overpayment and ask them to recalcuate the regular DD payment, you effectively reduce the total amount that you can pay each month. It's better to leave well alone and keep paying off whatever you can afford.
The regular monthly DD payment is split to reduce capital and interest (assuming that you have a repayment motrgage). By reducing the capital each month by £200, your regular payment overpays the required interest amount and the excess is put towards capital reduction.
Nationwide limit overpayments to £500 per month on a fixed rate mortgage; if you make this maximum overpayment and ask them to recalcuate the regular DD payment, you effectively reduce the total amount that you can pay each month. It's better to leave well alone and keep paying off whatever you can afford.
Mutley said:
King Herald said:
What I mean is I wanted the 'required' monthly payment amount to shrink, so I could increase the overpayments, or reduce them if necessary.
The only way I can see of doing that is to re-mortgage for a longer term/smaller monthly amount, and overpay to the sum you are now paying off.I shall pay them another visit when I get home again.
I banked with TSB for 25 years, but left them a year or so back due to gross incompetence and ignorance over a credit card interest rate that they hiked, nearly doubled, but simply could not/would not explain.King Herald said:
If we owe them less capital, surely the interest payments must change.
The amount owed will have gone down, so the amount of interest incurred will be smaller. This will result in either smaller repayments, or a reduction in the loan period. But the change will only be in proportion to how much you have overpaid as a fraction of the overall mortgage, and could be very small.Edited by GreenV8S on Monday 25th May 15:30
GreenV8S said:
King Herald said:
If we owe them less capital, surely the interest payments must change.
The amount owed will have gone down, so the amount of interest incurred will be small. This will result in either smaller repayments, or a reduction in the loan period. But the change will only be in proportion to how much you have overpaid as a fraction of the overall mortgage, and could be very small.http://www.whatmortgage.co.uk/calculators/fleximor...
put your details into this and you will see how many years you have potentially knocked off your mortgage.
put your details into this and you will see how many years you have potentially knocked off your mortgage.
jagman21 said:
http://www.whatmortgage.co.uk/calculators/fleximor...
put your details into this and you will see how many years you have potentially knocked off your mortgage.
Well, if we carried on like this, at the current fixed 5%, it'll save us £11k and five years. put your details into this and you will see how many years you have potentially knocked off your mortgage.
We started out with an 18 year mortgage, paid off nearly three already.
Edited by King Herald on Tuesday 26th May 18:32
I think that because you have a 5 year fixed the details may take a while to be seen - e.g. not until that period is over. Of course, they may recalculate every year, but generally with fix term mortgages the KFI states what you'll pay each month and say it will be fixed at that for the period.
If you overpay you are knocking all of that overpayment off the capital, generally at the start of a repayment mortgage term you pay very little off the capital, so by doing it early you should see a big difference overall - e.g. if you carry on until the fixed period is over you should have knocked off about £11k from the capital over and above regualr repayments - if you didn't overpay I'd expect you to have knocked off about £5k in the first 5 years of a 20 year mortgage, which is why you see a pretty sharp drop in the overall amount you will repay and the time it takes.
Right now, you don't get a lot for saving so sticking it into your home can be a good option (depending on how long for and your long term view of the housing market).
If you want more flexibility and have the faith in yourself, then I'd suggest an offset mortgage - you have the cash available, but save interest and it's much better from a tax view than a savings account. The rates are generally a bit worse for new mortgages than regular loans though, and if you're locked in with TSB it may not be worth it.
If you overpay you are knocking all of that overpayment off the capital, generally at the start of a repayment mortgage term you pay very little off the capital, so by doing it early you should see a big difference overall - e.g. if you carry on until the fixed period is over you should have knocked off about £11k from the capital over and above regualr repayments - if you didn't overpay I'd expect you to have knocked off about £5k in the first 5 years of a 20 year mortgage, which is why you see a pretty sharp drop in the overall amount you will repay and the time it takes.
Right now, you don't get a lot for saving so sticking it into your home can be a good option (depending on how long for and your long term view of the housing market).
If you want more flexibility and have the faith in yourself, then I'd suggest an offset mortgage - you have the cash available, but save interest and it's much better from a tax view than a savings account. The rates are generally a bit worse for new mortgages than regular loans though, and if you're locked in with TSB it may not be worth it.
Simian Dave said:
I think that because you have a 5 year fixed the details may take a while to be seen - e.g. not until that period is over. Of course, they may recalculate every year, but generally with fix term mortgages the KFI states what you'll pay each month and say it will be fixed at that for the period.
That sounds reasonable. I seem to recall the C&G guy saying something like that, that the payments are fixed, but he appeared to be guessing, full of 'maybes' and 'probablies'.Simian Dave said:
If you overpay you are knocking all of that overpayment off the capital, generally at the start of a repayment mortgage term you pay very little off the capital, so by doing it early you should see a big difference overall - e.g. if you carry on until the fixed period is over you should have knocked off about £11k from the capital over and above regualr repayments - if you didn't overpay I'd expect you to have knocked off about £5k in the first 5 years of a 20 year mortgage, which is why you see a pretty sharp drop in the overall amount you will repay and the time it takes.
Right now, you don't get a lot for saving so sticking it into your home can be a good option (depending on how long for and your long term view of the housing market).
If you want more flexibility and have the faith in yourself, then I'd suggest an offset mortgage - you have the cash available, but save interest and it's much better from a tax view than a savings account. The rates are generally a bit worse for new mortgages than regular loans though, and if you're locked in with TSB it may not be worth it.
The penalty to get out of the fixed mortgage deal is about £3k, so that knocks the fun out of any benefits we'd get from rearranging the mortgage before the fixed deal ends. Right now, you don't get a lot for saving so sticking it into your home can be a good option (depending on how long for and your long term view of the housing market).
If you want more flexibility and have the faith in yourself, then I'd suggest an offset mortgage - you have the cash available, but save interest and it's much better from a tax view than a savings account. The rates are generally a bit worse for new mortgages than regular loans though, and if you're locked in with TSB it may not be worth it.
I have no plans on moving for quite a while yet, having just completed my dream garage/workshop in the garden.
I've had an RBS Current Account Mortgage for just over 5 years , I imagine it's the same product as the offset , one account etc , works like an overdraft. Interest is only calculated on the amount you owe, and every month you can see the overall debt reducing ( assuming you overpay each month) You can usually go back overdrawn to your origianl agreed limit ( some change the amount anually depending how your payment plan is working out ) without question , and if you require more a phonecall is all it takes. I can't understand why everyone does not have such a mortgage , given the difference in interest paid by the banks and what they charge , irrespective of the base rate , it's got to be the best way to manage your money.
Overpayments are made against the capital, which almost always serves to reduce the term of the loan. This makes sense, because a) it is very good for you because it means you pay much less interest overall, and b) if you wanted to reduce your payments you wouldn't be paying more each month...
If you anticipate that at some point in the future you will wish to lower your payments below the "required" amount, and that is why you are overpaying now, you can do this via underpayments or payment holidays, which are only permitted in some mortgage products. Usually, underpayments and payment holidays can only be used when you have built up an overpayment fund.
However, what I would say is: what you are trying to do is probably monumentally pointless. If you have excess cash now and want to make the most of it, you always use it to pay off the most expensive debt first - you mentioned being bothered by the interest rate on a credit card, I expect the rate is much higher on that than your mortgage. Even if you have no other debts, you will probably still be better off putting the money in savings because the rates are typically higher than mortgage rates. You can get a regular saver at Barclays that pays 6%, or 7% at First Direct if you don't already have an ISA. Just don't spend the cash
Head over to moneysavingexpert.com for a full explanation.
I am constantly amazed by how many people overpay on 3% mortgages whilst keeping 6% savings and owing on 20% credit cards, all at the same time. For God's sake, pay off the credit card!
If you anticipate that at some point in the future you will wish to lower your payments below the "required" amount, and that is why you are overpaying now, you can do this via underpayments or payment holidays, which are only permitted in some mortgage products. Usually, underpayments and payment holidays can only be used when you have built up an overpayment fund.
However, what I would say is: what you are trying to do is probably monumentally pointless. If you have excess cash now and want to make the most of it, you always use it to pay off the most expensive debt first - you mentioned being bothered by the interest rate on a credit card, I expect the rate is much higher on that than your mortgage. Even if you have no other debts, you will probably still be better off putting the money in savings because the rates are typically higher than mortgage rates. You can get a regular saver at Barclays that pays 6%, or 7% at First Direct if you don't already have an ISA. Just don't spend the cash
Head over to moneysavingexpert.com for a full explanation.I am constantly amazed by how many people overpay on 3% mortgages whilst keeping 6% savings and owing on 20% credit cards, all at the same time. For God's sake, pay off the credit card!
R60EST said:
I can't understand why everyone does not have such a (offset) mortgage , given the difference in interest paid by the banks and what they charge , irrespective of the base rate , it's got to be the best way to manage your money.
They are convenient, in that they automatically make the best use of your cash to limit the interest you have to pay. But the reason most people don't use them is that the rates are simply not competitive, i.e. you can get a much lower rate on a tracker/fixed/variable. If you want to save money but don't want to spend the time moving money around (i.e. out of your 0% current account), they're a good product. Otherwise, get a cheap mortgage and a good savings account.Edited by bogwoppit on Wednesday 27th May 18:09
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