Overpaying the mortgage: how does this work?

[King Herald]

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.

[King Herald]

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?

What I mean is I wanted the 'required' monthly payment amount to shrink, so I could increase the overpayments, or reduce them if necessary.

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.

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]

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.

It does say on the mortgage statement that if we over-pay they will recalculate the interest at the end of the year, but I'm pretty sure nothing has changed, at all. I was expecting to at least see something change on that front. If we owe them less capital, surely the interest payments must change.

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]

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.

I've overpaid £200 a month for about a year now, and £100 a month for maybe six months before that. I'll delve deeper into this when I get home. My faith in TSB/C&G, is minimal.

[King Herald]

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.

We started out with an 18 year mortgage, paid off nearly three already.

Edited by King Herald on Tuesday 26th May 18:32

[King Herald]

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.

I have no plans on moving for quite a while yet, having just completed my dream garage/workshop in the garden.

[King Herald]

bogwoppit said:

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 have no credit card, or other debts, only this mortgage. HSBC is currently paying best part of feck all for savings, as are most other places I know of. If Barclays do 6% I shall be paying them a visit as soon as I get home. Even my nationwide BS is paying peanuts.

And ISA is probably no use to me as I don't pay income tax.

[King Herald]

pimpin gimp said:

bogwoppit said:

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!

Not quite that simple though is it?

A 3% mortgage over say 20 years on a 150k debt is going to be a shedload more costly than a 20%, or even 50% credit card on a 1k debt over a year.

I would have thought that the term plays a much bigger part than the interest rate.

I tend to use credit cards as short term loans, and I sometimes leave a grand or so debt on one, for a month or two, even when I have more than that in the bank, as I don't want to use my 'liquid cash' up. And I know that if I take some cash out of my Nationwide BS account to pay it off it won't get put back for ages.

[King Herald]

Horse_Apple said:

King Herald said:

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.

With the C&G fix you can doing the following:

Overpay every month up to the value of the interest element of the monthly payment.

Once a year, pay off up to 10% of the oustanding loan.

If you make monthly overpayments then instead of reducing the overall monthly cost it will simply accelerate the time to expiry/completion.

If you make a one off payment and specify it as such then they will re-calculate/re-base the ongoing monthly payments to reflect this.

Ahh, that sounds more like it. I will see about making an extra annual lump sum payment instead of just the monthly one I reckon, so it at least feels like I'm making headway. Thanks.

[King Herald]

Horse_Apple said:

But, the joy of making the monthly overpayments is that if your circumstances change then you can control the finance, if you go and stick £20K in one hit just to get a fractionally lower monthly rate then you are unlikely to be able to gain access to those funds should the need arise.

The C&G interest only fix is one of the best products out there as it gives you total control of the capital payback each month plus the option of a significant one-off top up each year.

It's the next best thing to an offset which seems hard to find at present.

We have the standard repayment mortgage, not interest only. It has about £73k left if I remember rightly. I wasn't really planning on whacking 20k on it just yet, but there is talk of a large bonus at work next year, if I still have a job, so I may put a big chunk on it then, plus continue the extra monthly bit.

I may run the numbers and see how much monthly repayments go down per lump sum paid off.