Overpayment of mortgage

[LaFleur]

Hello all,

I am currently in a position to potentially pay off £40k of a small £100k mortgage. The question is if one retained £20k and only paid off £20k of the mortgage is it really worth it?

Also what happens? If the mortgage was for £100k does the 20k go towards the capital or the interest or a mixture?

Thanks

LaFleur

[Welshbeef]

Any OVER payment reduces the capital so it will either reduce the mortgage term if you keep the repayments the same OR reduce your monthly payments over the existing term.

Which is better to do as in split it well it depends what the net of both deals is. If you cannot beat the net interest rate on your mortgage in savings then your better off paying the mortgage down.


Watch out for fees for overpayment there may be none or there may be max overpayments permitted which will help guide you on the best option.

I'd personally put it all in we have an offset which by it's very nature has no overpayment fees and if needed easily pulled back in the future.

[Tino]

Bear also in mind that interest rates are more favourable if the LTV is lower, so it couild be a time to review your mortgage, and get one with a better rate.
What rate is your mortgage at, what have you got left to pay, and what is the property value?

Edited by Tino on Tuesday 15th February 13:04

[Countdown]

Tino said:

Bear also in mind that interest rates are more favourable if the LTV is higher, so it couild be a time to review your mortgage, and get one with a better rate.
What rate is your mortgage at, what have you got left to pay, and what is the property value?

LTV should be lower surely ?

[Tino]

Countdown said:

LTV should be lower surely ?

Yep lower

[Fatman2]

LaFleur said:

Hello all,

I am currently in a position to potentially pay off £40k of a small £100k mortgage. The question is if one retained £20k and only paid off £20k of the mortgage is it really worth it?

Also what happens? If the mortgage was for £100k does the 20k go towards the capital or the interest or a mixture?

Thanks

LaFleur

If you shift to an offset mortgage (say a First Direct one for instance) then it doesn't matter whether you have £40k liquid or off the mortgage amount. If you're good with money then it may be worth checking out as it's always a bonus to have liquid cash available.

Not sure about the capital/interest thing but look into it. My First Direct interest is calculated daily so any overpayment reduces the capital directly, thus reducing the interest from the minute it gets paid in.

[LaFleur]

Tino said:

Bear also in mind that interest rates are more favourable if the LTV is lower, so it couild be a time to review your mortgage, and get one with a better rate.
What rate is your mortgage at, what have you got left to pay, and what is the property value?

Edited by Tino on Tuesday 15th February 13:04

Property = 220k
Mortgage = 100k
APR = 5% fixed for 4 more years (gambled on the rates rising quicker than has occured!)
24 years remaining

[LaFleur]

Fatman2 said:

If you shift to an offset mortgage (say a First Direct one for instance) then it doesn't matter whether you have £40k liquid or off the mortgage amount. If you're good with money then it may be worth checking out as it's always a bonus to have liquid cash available.

Not sure about the capital/interest thing but look into it. My First Direct interest is calculated daily so any overpayment reduces the capital directly, thus reducing the interest from the minute it gets paid in.

that sounds good, it might be worth giving them a call and work out the penalty fees associated with a switch. I like the idea that the capital is there if you need it or offset when you dont

[steve singh]

LaFleur said:

Tino said:

Bear also in mind that interest rates are more favourable if the LTV is lower, so it couild be a time to review your mortgage, and get one with a better rate.
What rate is your mortgage at, what have you got left to pay, and what is the property value?

Edited by Tino on Tuesday 15th February 13:04

Property = 220k
Mortgage = 100k
APR = 5% fixed for 4 more years (gambled on the rates rising quicker than has occured!)
24 years remaining

Suspect you'll be charged an early repayment fee on the majority of your overpayment amount - someone like nationwide charge 5% early in the deal so a £2k charge on £40k overpayment.

Likewise if you switch your deal you'll be charged the fee on the entire mortgage amount (£220k * 5% = £11k).

[LaFleur]

I beleive its not as bad (santander) over the Nationwide early fees.