Overpaying mortgages

[trooperiziz]

Morning

Whats the deal on overpaying mortgages? My current mortgage provider allows me to overpay by 10% per year without penalties and not being in a position to take advantage of this I didn't much worry.

However, next year I'll most likely be contracting in London and will be able to overpay a significant amount into the mortgage (I'm assuming this is the best option rather than dropping the money into a savings account, but I know that is a personal decision).

I have a few questions though:

1) is the 10% mentioned 10% of each monthly payment, or 10% of the mortgage total?
2) is this a typical deal, I assume I could get a much better deal regarding overpayment on another mortgage?
3) Would I be better getting a "One" account and dropping the savings into there and offsetting?
4) Would I be better saving up a lump sum and overpaying in one go, or overpaying a little each month?

[minimax]

trooperiziz said:

1) is the 10% mentioned 10% of each monthly payment, or 10% of the mortgage total?

usually 10% of the current mortgage balance (so the facility obviously reduces every time you use it) but some times a flat 10% of the original balance.

trooperiziz said:

2) is this a typical deal, I assume I could get a much better deal regarding overpayment on another mortgage?

yeah, it's pretty much typical although there is quite a lot of variation in the marketplace...for example nationwide deals only ever let you overpay £500 maximum per month during any tie in period...northern rock allow unlimited overpayments within the tie in period as long as you don't actually pay the full balance off (i.e you can pay it off down to £1 - and then draw it back out again free if you like too!), scottish widows allow between 10% and 15% depending on the deal...etc etc. but as an average yes, 10% is pretty normal.

trooperiziz said:

3) Would I be better getting a "One" account and dropping the savings into there and offsetting?

depends on the size of your savings, opportunity cost depending on other investment opportunities, life goals, risk aversion, blablablabla in other words, it depends

trooperiziz said:

4) Would I be better saving up a lump sum and overpaying in one go, or overpaying a little each month?

overpaying a little each month is generally best unless you can get a better return either tax free or net of tax on the money by investing it elsewhere.


HTH

Edited by minimax on Friday 27th October 11:59

[victormeldrew]

Beware the One account types, unless you really have willpower of steel. Yes, you can overpay as much as you like. Equally you can underpay as much and as often as you like simply by spending more.

[M400 NBL]

I overpay my mortgage simply because interest rates are so low, quite a lot of capital is payed off.

You should do a simple excel document showing how much of a difference overpaying 10% can make. If nothing else it will encourage you to keep on overpaying.

I found that the oneaccount is only good if you have will power to leave money in your account. Otherwise their rate is slightly higher than most lenders and so you'd actually be worse off.

[vex]

We have an Intelligent Finance account, very similar to the One account.

With the savings wify had and over payment of between £100 and £200 per month we have paid off over 30K in 4 years. Mainly interest due to a 30K offset of wifes savings.

Well worth it IMO.