Lump sum overpayment of mortgage - options
Discussion
What do people think is best?
I have recently overpaid 8% of my mortgage with cash.
Term left is 19yrs.
There is no way I will be going at it this long, I will pay it off in 10 most likely.
Should I:
a) keep term at 19 yrs and ask for reduced monthlies, put monthly money difference into something more rewarding
b) reduce the term.
Which is financially more efficient? Apparently I get to pick.
Its fixed at 3.98% for another 3yrs. (of a 5yr fix)
I pay my monthly easily each month with (fortunately) money to spare.
A) is more efficient, provided that you put the difference between your prior payment and your new payment into savings/investments that return more than your mortgage rate of interest. Without that alternative investment B is more efficient.
Of course, if you have a savings/investments option that returns more than your mortgage rate of interest, then your initial overpayment wasn t financially efficient in the first place. But no use crying over spilt milk.
(Also, there are other factors at play aside from financial efficiency, but that s what you asked about)
Of course, if you have a savings/investments option that returns more than your mortgage rate of interest, then your initial overpayment wasn t financially efficient in the first place. But no use crying over spilt milk.
(Also, there are other factors at play aside from financial efficiency, but that s what you asked about)
Jawls said:
A) is more efficient, provided that you put the difference between your prior payment and your new payment into savings/investments that return more than your mortgage rate of interest. Without that alternative investment B is more efficient.
Of course, if you have a savings/investments option that returns more than your mortgage rate of interest, then your initial overpayment wasn t financially efficient in the first place. But no use crying over spilt milk.
(Also, there are other factors at play aside from financial efficiency, but that s what you asked about)
Thanks. The cash overpayment was in the catagory "ultrasafe" and so it had to go somewhere with zero risk. I really didn't think there was anything else at 3.98% that was (so) zero risk. My thinking that paying off a debt is a zero risk investment. The mortgage isn't with Northern Rock..... Of course, if you have a savings/investments option that returns more than your mortgage rate of interest, then your initial overpayment wasn t financially efficient in the first place. But no use crying over spilt milk.
(Also, there are other factors at play aside from financial efficiency, but that s what you asked about)
My other investments are medium risk and some are medium to high risk, so I can spread some of the monthly difference there.
Putting the 8% chunk into shares or crypto was never on the table!
Overpaying your mortgage is one of the most tax efficient things you can do, alongside putting the max into your ISAs and pension.
(And with the annual allowance most NHS consultants will be using their full allowance already with or without any private addition)
I did what you’re doing, put every bit of extra cash into overpaying my mortgage and paid it off in 7 years. It was the best financial decision I made (other than buying an NSX at the absolute trough in the market as I remind my wife every time I raise the idea of buying another car
)
(And with the annual allowance most NHS consultants will be using their full allowance already with or without any private addition)
I did what you’re doing, put every bit of extra cash into overpaying my mortgage and paid it off in 7 years. It was the best financial decision I made (other than buying an NSX at the absolute trough in the market as I remind my wife every time I raise the idea of buying another car
)Many years ago when I was paying off my mortgage, I kept the term and payments the same, therefore effectively over paying every month, I paid in 3 lump sums during the time I had it. I paid a 25 year mortgage off in 8 years. No idea if present terms allow that sort of thing these days. But then it was no where near the max I could borrow at the time. After that, and during the mortgage I also put a lot into ISA's, which I now live off waiting for my pensions to kick in.
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