Re-mortgage overpayment question

[Henrico]

I have a quick hypothetical question which I couldn't find a similar thread but apologies if I missed it or if it's a stupid question.

If you have a mortgage of £150,000 and you want to pay it off all at once but your current mortgage has overpayment charges, is it possible to switch to a different mortgage with no overpayment charges before your mortgage terms come to an end and pay it off a month later?

Thanks

[Edible Roadkill]

Is your mortgage in a fixed deal period? Is so You’d probably be hit with charges for early closure of the account. Mines 3% or so.

Why would you want to pay it all off? Assuming the rate is low and you have 150k laying around then that money could be put to work harder than it will paying your mortgage off?

[Henrico]

I put that figure into a calculator and it would save ~£40,000 over the course of the mortgage so it's a good saving in one respect. Also it's a kind of fantasy I have to not have a mortgage lingering over my head like the Sword of Damocles (OK maybe a bit of an exaggeration).

What would your strategy be with regards to the original post?

[SOL111]

Work out the penalty cost vs the interest if you wait until your current product comes to an end naturally.

In the meantime pay as much of as possible, without incurring any penalties.

[MrOrange]

As he/she says. Do the maths, penalty minus interest payments and you may find you’re ahead so clear it. Or wait till the last month of the fixed deal and pay it all of then as there is usually no penalty applied.

[romeogolf]

Henrico said:

I have a quick hypothetical question which I couldn't find a similar thread but apologies if I missed it or if it's a stupid question.

If you have a mortgage of £150,000 and you want to pay it off all at once but your current mortgage has overpayment charges, is it possible to switch to a different mortgage with no overpayment charges before your mortgage terms come to an end and pay it off a month later?

Thanks

If you remortgage to a new provider, you would still need to pay early repayment charges as the existing lender is being repaid (by funds from the new lender). To avoid early repayment charges you would need to wait to the end of the fixed period with your existing lender.

So, in short, no.

Whether these charges outweigh any savings made by paying it off early repayment would be a separate question which you would need to calculate.

[Henrico]

romeogolf said:

If you remortgage to a new provider, you would still need to pay early repayment charges as the existing lender is being repaid (by funds from the new lender). To avoid early repayment charges you would need to wait to the end of the fixed period with your existing lender.

So, in short, no.

Whether these charges outweigh any savings made by paying it off early repayment would be a separate question which you would need to calculate.

That makes a lot of sense, thanks for the help all. Now I just need to find £150k.

[Edible Roadkill]

Off course a hypothetical 150k is a nice thought but unless a rich aunt dies and leaves you her estate or you have some other life event that throws you that sort of money it’s not likely to happen for most of us.

Even earning a good salary it’s very difficult to save a vast amount of money like that in a short term so the likelihood of paying down 150k of mortgage debt is pretty slim.

I started making monthly overpayments a few years back. Basically I decided that any subsequent pay increase I received from them has went into the overpayment. It also sits in a overpayment pot until I ask them capitalise the pot. Meaning I can still access the overpayments should I wish to which is good.

So maybe start with something like that!? Even sticking in a hundred quid a month and keep building that amount as you can soon shreads years off the term and becomes quite unnoticed just paying it in every month once you are used to it. I thought anyway. And then when you get that statement at the end of the year it’s a good feeling.

Of course there’s a good argument for not overpaying a mortgage as rates are so low, as low as they’ll ever be really. You theoretically should be able to save/invest at a higher rate than what your mortgage is at.

I’m no investment advisor but personally I think & also practice at doing a bit or everything with regards to overpayment, isa, premium bonds, top up pension, some shares and normal savings etc spread it around then it’s not a bad place to be. I can’t find value in ignoring all other savings and investment opportunities to only focus on smashing the mortgage.

[Ari]

Edible Roadkill said:

Is your mortgage in a fixed deal period? Is so You’d probably be hit with charges for early closure of the account. Mines 3% or so.

Why would you want to pay it all off? Assuming the rate is low and you have 150k laying around then that money could be put to work harder than it will paying your mortgage off?

My first question would be, how?

My second would be, have you put your money where your mouth is and squeezed every drop of equity out of your house to borrow to the hilt and made that money 'work harder than paying your mortgage off' for yourself?

It's just that people often seem to bandy around the idea that you can borrow money and invest it 'cleverly' to make more. Which is basically a perpetual money making scheme - as long as you continue to reinvest this mythical extra money it should snowball you to millionaire status in no time.

Yet strangely, no one ever seems to actually do it...

[Gary29]

Ari said:

My first question would be, how?

My second would be, have you put your money where your mouth is and squeezed every drop of equity out of your house to borrow to the hilt and made that money 'work harder than paying your mortgage off' for yourself?

It's just that people often seem to bandy around the idea that you can borrow money and invest it 'cleverly' to make more. Which is basically a perpetual money making scheme - as long as you continue to reinvest this mythical extra money it should snowball you to millionaire status in no time.

Yet strangely, no one ever seems to actually do it...

Agree with this, especially at these kind of values we're talking about. Interest rates for savers are also through the floor, I'd much rather pay the mortgage off than take the risk of investing it for minimal returns.

[Edible Roadkill]

Ari said:

Edible Roadkill said:

Is your mortgage in a fixed deal period? Is so You’d probably be hit with charges for early closure of the account. Mines 3% or so.

Why would you want to pay it all off? Assuming the rate is low and you have 150k laying around then that money could be put to work harder than it will paying your mortgage off?

My first question would be, how?

My second would be, have you put your money where your mouth is and squeezed every drop of equity out of your house to borrow to the hilt and made that money 'work harder than paying your mortgage off' for yourself?

It's just that people often seem to bandy around the idea that you can borrow money and invest it 'cleverly' to make more. Which is basically a perpetual money making scheme - as long as you continue to reinvest this mythical extra money it should snowball you to millionaire status in no time.

Yet strangely, no one ever seems to actually do it...

First - I’m not willing to explain what investments I have but be assured that mostly produce higher yield than what my mortgage costs some don’t but carry no risk. I’m sure I don’t need to explain the risk/reward conflict on investment.

If 150k landed on my lap tomorrow - no I wouldn’t stick it’s entirity into my mortgage. I’d probably seek professional advice on what best to do with it. I already have a strategy in place to pay the mortgage off in x number of years by the age of y allowing time to then focus on z......so maybe that’s why it doesn’t appeal. Everybody's personal financial aims are different tho that’s why there’s no hard and fast answer here on if you should pay the mortgage down.

Second - No I’m not that foolish. I’d never do something risky in attempt to make a few quid. As above I prefer a spread around approach, some medium risk some none, some overpayment, some of everything thanks.

[Ari]

Edible Roadkill said:

First - I’m not willing to explain what investments I have but be assured that mostly produce higher yield than what my mortgage costs some don’t but carry no risk. I’m sure I don’t need to explain the risk/reward conflict on investment.

Right, so your statement that money could be put to work harder than it will paying your mortgage off is incorrect. It would be correct to say 'you could try gambling with the money instead, you might make more than your mortgage costs or you might not'.

Edible Roadkill said:

Second - No I’m not that foolish. I’d never do something risky in attempt to make a few quid. As above I prefer a spread around approach, some medium risk some none, some overpayment, some of everything thanks.

Exactly, and yet that is what you're advising. 'Don't pay off your mortgage, borrow and chance it that you might do better'.

Sorry, sounds like I'm picking on you and it is not intentional. But this mythical 'oh just borrow money and invest and make more than it costs to borrow' crops up again and again on here (normally in car PCP threads where everyone trots out that you shouldn't spend £20K on a car, you should PCP it and put that £20K 'to work' and make more than the borrowing costs).

There's absolutely nothing wrong with investing obviously, but advising people to borrow to do it is not good advice.

[Edible Roadkill]

Ok,

I’ve seen/had good returns far surpassing the op’s Forecast of what saving 40k on a mortgage term let’s say 20-25yrs. If you look at it like that 40 grand over that term is not amazing really is it!?

Agreed if you want to be safe buy the house by all means. But if you have an appetite for a bit of risk then there are other things out there which can’t be ignored.

I’ve never once said to borrow money to gamble it away as insinuated, this is all about a theoretical 150k that could end the house loan.

I’d never ‘gamble’ in something I don’t understand so let’s say I ‘gamble’ in stocks close to home that I fully am coherent with so is calculated enough to bring good returns. I’ve been in very early on some new starts and watched my calculated punt go from penny shares to several pounds. Likewise during gluts of respected multi’s i have delved in appreciting that they will recover which they have.

This is at the top tier of my risk level of course and I only ‘gamble’ what I’d be prepared to loose.

A good well balanced approach is important instead of chucking all your eggs into one basket which might break.

What if there was a housing slump worse than 2008 and the value dropped 40% this time instead of the 20% seen then and it takes 10yrs to recover during which you want to downsize and get some equity release for retirement? It’s a very severe unlikely example but who knows it may happen, Is housing still such a good idea then!?

I still maintain if my mortgage is 150k and tomorrow someone gives me 150k I would not be running to the bank to hand the full amount over to them, not when my mortgage rate is 2.8% apr.

Edited by Edible Roadkill on Thursday 7th March 10:01

[bmwmike]

Mortgage money could be used to buy a rental paying 5% per year (as lots of people do) or you could buy equity/shares with it and spread sensibly could pull 5% in dividends quite easily.

In both cases there is capital at risk.

[Ari]

Edible Roadkill said:

What if there was a housing slump worse than 2008 and the value dropped 40% this time instead of the 20% seen then and it takes 10yrs to recover during which you want to downsize and get some equity release for retirement? It’s a very severe unlikely example but who knows it may happen, Is housing still such a good idea then!?

Then you'd be extremely grateful that you'd paid as much off the mortgage as possible thus limiting the chance of negative equity with all the problems that creates, and maximising the equity you could still release.

The situation you describe would only be an issue if you'd tried to 'make the £150K work for you' by maybe buying three £500K properties with £50K deposits on BTL mortgages, in which case your 40% slump would see you about £600,000 down!

Then you'd REALLY wish you'd paid it off your mortgage rather than trying to gamble with it in the hope of beating your mortgage interest.