Mortgage - low interest rates, should I make overpayments?

[CoolHands]

In general, is it better to make overpayments while interest rates are low (like currently) or not? (variable-rate mortgage). FYI my mortgage is a cheap one - libor rate +2% if it makes a difference (penalty-free overpayments on mine).

At the moment I'm obviously spending money on frivolous things (as my mrtgage is low) but perhaps I should be paying off the mortgage. When interest rates (eventually) go back up, I won't be in that position - I will only be able to pay the mortgage (ie no overpayments).

[willisit]

Yes; if you can afford to, and you know what it'll mean (term or capital) then go for it. We do and it's made a huge difference.

[anonymous-user]

So your question is, should I continue wasting my money on crap I don't need, or should I pay down a debt that it will inevitably cost me more to service in the future?

Do you really need help with this

[rossmc88]

Yeah deffo pay off more if you can afford it, you will thank yourself later.

Here's a great link to work out how much you can save in interest:

http://www.moneysavingexpert.com/mortgages/mortgag...

[CoolHands]

^ yeah but you know what I mean! There's something I vaguely recall about not paying money back when it's cheap cos its not worth it or something. I'm (now) thinking that way leads to ruin...

I'd better start paying up!

[mathmos]

Actually I am not sure I agree, I guess it depends on what your future plans are.

Stopping spending spare cash on stuff you don't need is a bit of a no brainer...but if you ever plan to move in the future to a more expensive place it seems to me to make more sense to stash your spare cash in an account with as high a rate of interest as possible. That way you can use your savings to pay for the difference in property price and port your current cheap mortgage to a new property without having to take out a larger and possibly more expensive mortgage.

[Sarnie]

CoolHands said:

^ yeah but you know what I mean! There's something I vaguely recall about not paying money back when it's cheap cos its not worth it or something. I'm (now) thinking that way leads to ruin...

I'd better start paying up!

It's only worth not repaying your low interest mortgage if you are putting the money elsewhere that is making you a higher return than what your mortgage is being charged at. Spending your surplus money on other stuff because your mortgage is low isn't the best thing to be doing as it won't be low for ever....

[Mellow Matt]

If you can get more than 2.5% return on your money (after tax), then you should put the money there instead. Then, later, if the mortgage starts to cost more than the investment returns, you can put all the money into the mortgage instead.

[Esseesse]

Mellow Matt said:

If you can get more than 2.5% return on your money (after tax), then you should put the money there instead. Then, later, if the mortgage starts to cost more than the investment returns, you can put all the money into the mortgage instead.

This.

[oyster]

Esseesse said:

Mellow Matt said:

If you can get more than 2.5% return on your money (after tax), then you should put the money there instead. Then, later, if the mortgage starts to cost more than the investment returns, you can put all the money into the mortgage instead.

This.

Except the OP said the mortgage was 2% above LIBOR. He/she didn't say when that LIBOR is taken from or whether it's a 3, 6 or 12 month LIBOR that's used.

[anonymous-user]

oyster said:

Esseesse said:

Mellow Matt said:

If you can get more than 2.5% return on your money (after tax), then you should put the money there instead. Then, later, if the mortgage starts to cost more than the investment returns, you can put all the money into the mortgage instead.

This.

Except the OP said the mortgage was 2% above LIBOR. He/she didn't say when that LIBOR is taken from or whether it's a 3, 6 or 12 month LIBOR that's used.

I would imagine the OP meant it was 2% above BOE base rate, does anybody actually do residential mortgages against LIBOR?

[oyster]

Bluequay said:

oyster said:

Esseesse said:

Mellow Matt said:

If you can get more than 2.5% return on your money (after tax), then you should put the money there instead. Then, later, if the mortgage starts to cost more than the investment returns, you can put all the money into the mortgage instead.

This.

Except the OP said the mortgage was 2% above LIBOR. He/she didn't say when that LIBOR is taken from or whether it's a 3, 6 or 12 month LIBOR that's used.

I would imagine the OP meant it was 2% above BOE base rate, does anybody actually do residential mortgages against LIBOR?

Good point.

In which case yet to be able to make 2.5% right now, after tax, is not easy in a simple account.

But there's a lot to be said to holding onto some cash and not ploughing everything into paying off debt. You never know when an investment opportunity may come along.


Another school of thought is that all spare money paid into the mortgage and no savings at all allows the state to look after you (a bit) should you lose your job.

[Zigster]

Obvious point as well is to pay down higher interest debt first.

I'm guessing that the OP doesn't have any other debt (e.g. credit card balances) but, if he did, then that should be paid off before any mortgage overpayments.

[CoolHands]

Bluequay said:

oyster said:

Esseesse said:

Mellow Matt said:

If you can get more than 2.5% return on your money (after tax), then you should put the money there instead. Then, later, if the mortgage starts to cost more than the investment returns, you can put all the money into the mortgage instead.

This.

Except the OP said the mortgage was 2% above LIBOR. He/she didn't say when that LIBOR is taken from or whether it's a 3, 6 or 12 month LIBOR that's used.

I would imagine the OP meant it was 2% above BOE base rate, does anybody actually do residential mortgages against LIBOR?

Hi it's 2% on top of the 3-month libor rate currently approx 0.52 so my rate is 2.52%. It is a buy to let interest only mortgage (oops)

(I don't have any other debts / loans / credit cards).

Edited by CoolHands on Tuesday 1st April 12:19

[daddy cool]

CoolHands said:

In general, is it better to make overpayments while interest rates are low (like currently) or not? (variable-rate mortgage). FYI my mortgage is a cheap one - libor rate +2% if it makes a difference (penalty-free overpayments on mine).

Yes, do it! Thats what ive been doing for the past few years since the rates hit the floor - im with Alliance&Leicester/Santander and on 1.25% interest rate. If i make a £1000 overpatment, that wipes about £13 off future months repayments. £1000 in a high interest bank account wouldnt be earning me £13 a month... its a virtuous circle.


Just remember:
1) Keep a wodge of cash in an instant-savings account in case you need a new boiler/car
2) check that there isnt a minimum amount overpayment for it to come off the capital. For example with Santander, less than £500 overpayment just pays off Interest (ie, thats good for the bank, they get their money in full but quicker) rather than capital (thats good for you, you pay the bank less overall)

[NPI]

CoolHands said:

It is a buy to let interest only mortgage

I wouldn't have thought you can simply overpay an IO mortgage in the same way as you can repayment.

I'm involved with other parties in one which everyone is overpaying and all that's happening is a positive balance is building up, but it's not affecting the outstanding amount.

[CoolHands]

I can I've checked

here's my company:

http://www.bbg.co.uk/landlords/manage-your-mortgag...

[oyster]

daddy cool said:

CoolHands said:

In general, is it better to make overpayments while interest rates are low (like currently) or not? (variable-rate mortgage). FYI my mortgage is a cheap one - libor rate +2% if it makes a difference (penalty-free overpayments on mine).

Yes, do it! Thats what ive been doing for the past few years since the rates hit the floor - im with Alliance&Leicester/Santander and on 1.25% interest rate. If i make a £1000 overpatment, that wipes about £13 off future months repayments. £1000 in a high interest bank account wouldnt be earning me £13 a month... its a virtuous circle.


Just remember:
1) Keep a wodge of cash in an instant-savings account in case you need a new boiler/car
2) check that there isnt a minimum amount overpayment for it to come off the capital. For example with Santander, less than £500 overpayment just pays off Interest (ie, thats good for the bank, they get their money in full but quicker) rather than capital (thats good for you, you pay the bank less overall)

How can a £1,000 overpayment take £13 off the monthly repayments?

[daddy cool]

oyster said:

How can a £1,000 overpayment take £13 off the monthly repayments?

Because theres only about 35k left of mortgage, and im only a few years of the end of the term, so most of what im paying back is capital.

[anonymous-user]

I think Oyster's point is that it doesn't cost £13 a month in interest to borrow £1000, unless your interest rate is circa 15.6%.