I got my final annual mortgage statement and I'm like this...

Freakbro said:
When I make an overpayment, it sits in a seperate "overpayment" account the bank has. I can see the balance remaining on my mortgage on my online account and it's the net difference between whats left and what I've overpaid, but until I apply that overpayment against the capital remaining then the interest charged is still on the full balance remaining.

ie :

Mortgage - 20k
Overpayments - 5k
Remaining balance shown - 15k
Interest charged on - 20k
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Hmm interesting, mine doesn't work that way. As i mentioned in a previous post the overpayment is combined with the fixed monthly payment. Once that comes out of the account on date X (usually 1st/2nd of the month) the balance is reduced by fixed amount + overpayment. At the end of the month the lender then works out the interest based on the balance after fixed amount + overpayment has been paid.

So based on that it would seem the overpayment is going towards the capital rather than the interest. As the interest is only worked out on the new balance after the overpayment is made.
 
413x said:
If I pay off an extra 500 that month I'm paying 1300.
300 is interest and 1000 is capital.
So interest next day is calced on 219000 rather than 219500

How else can it work?
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I used to think it worked like that, until Barclays explained it worked the way I posted above. Hence why I was making overpayments and the monthly amount I paid didn't change, until I told them to apply the overpayment against the capital, then my monthly payments reduced. But ofc, each lender can be different!

Semple said:
Hmm interesting, mine doesn't work that way.
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TBF, I do only know the way my mortgage provider, Barclays, is doing it. It also depends on how much the overpayment is, if it's over a certain % then it does automatically get applied against the capital, less than that it goes into this 'overpayment' account.
 
Freakbro said:
I used to think it worked like that, until Barclays explained it worked the way I posted above. Hence why I was making overpayments and the monthly amount I paid didn't change, until I told them to apply the overpayment against the capital, then my monthly payments reduced. But ofc, each lender can be different!



TBF, I do only know the way my mortgage provider, Barclays, is doing it. It also depends on how much the overpayment is, if it's over a certain % then it does automatically get applied against the capital, less than that it goes into this 'overpayment' account.
Click to expand...

So wait. Yours sits in limbo land with the bank effectively stealing the interest from you both off the money sat in limbo and also the part that would be reduced by reducing your capital?
 
413x said:
So wait. Yours sits in limbo land with the bank effectively stealing the interest from you both off the money sat in limbo and also the part that would be reduced by reducing your capital?
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Yep!

Must admit I had to get them to explain it to a few times as I was gobsmacked they did this lol. I asked what would have happened if I just continued to pay the mortgage to the end of term then and they said they just repay you the overpayments back...I was seriously like WTF :confused:
 
Freakbro said:
Yep!

Must admit I had to get them to explain it to a few times as I was gobsmacked they did this lol. I asked what would have happened if I just continued to pay the mortgage to the end of term then and they said they just repay you the overpayments back...I was seriously like WTF :confused:
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This is terrible.
Really. It isn't an overpayment. It's a holding account.
That's some significant deception there. On what is for many significant money.


So it could. Literally sit in there getting bigger and bigger but not applied? And they even show it being applied (net mortgage) without it being applied??
 
I've not really overpaid at all, but after seeing this table... I think I'll be sticking £100 extra in :eek:

 
EVH said:
I've not really overpaid at all, but after seeing this table... I think I'll be sticking £100 extra in :eek:

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As is typical with compound interest, the effect is much greater at the start. If you've not got many years left on the mortgage then you won't see as great a benefit from overpayments compared to if you'd only just started it.

The table is also a bit basic/flawed, as it assumes the mortgage rate stays the same throughout the full duration (most people will take out fixed term and then it reverts to SVR if they don't renew the mortgage). It also doesn't take into account that you're unlikely to be able to continue making £1000 overpayments in the last 25% without falling foul of the overpayment limits and getting stung badly with penalties.

We're on a 5 year fixed (about halfway through) and i worked out by overpaying by 50% we'll have saved £3.6k in interest over 5 years compared to if we stuck with the fixed amount.
 
EVH said:
I've not really overpaid at all, but after seeing this table... I think I'll be sticking £100 extra in :eek:

Click to expand...


It is compelling for sure. That said over the length of period you can accrue much more in a well invested portfolio, which you can then feed into a pension or just as a retirement fund, or future investment (BTL etc...) however as mentioned this is an emotional thing, and not everyone is interested in investing, and clearing a mortgage can psychologically feel a lot better.

Just go with what you feel comfortable with :) I was overpaying when the interest rate was higher than 2% as it made a bigger dent.
 
Freakbro said:
When I make an overpayment, it sits in a seperate "overpayment" account the bank has. I can see the balance remaining on my mortgage on my online account and it's the net difference between whats left and what I've overpaid, but until I apply that overpayment against the capital remaining then the interest charged is still on the full balance remaining.

ie :

Mortgage - 20k
Overpayments - 5k
Remaining balance shown - 15k
Interest charged on - 20k
Click to expand...

That seems really wacky to me. What do you need to do to apply the overpayment balance against the capital?

:edit: Derp, I read the whole thread now :p
 
Freakbro said:
I used to think it worked like that, until Barclays explained it worked the way I posted above. Hence why I was making overpayments and the monthly amount I paid didn't change, until I told them to apply the overpayment against the capital, then my monthly payments reduced. But ofc, each lender can be different!
Click to expand...
I am no expert, but I feel like you might be falling into a different trap here. If your overpayments are resulting in your monthly payments reducing, then it sounds like you are not reducing the term of your mortgage - which means you are not reducing the overall amount you'll pay by as much.

Far better, if you overpay, to confirm that your monthly repayments will stay the same, but the length of your mortgage will reduce.

I can see in my mortgage account that my monthly repayments have stayed the same throughout the 2 years it has currently been active - but the amount of each payment which is taken up by interest has reduced significantly due to my overpayments, meaning I am actually paying off more of the mortgage each month - in addition to the extra I have paid off via the overpayment itself.

As it stands, having set the term length at 15 years when we got this mortgage (because that set the monthly payments at a high, but eminently manageable level) our aim is to overpay the maximum each year until we reach the end of the 5 year fixed period. At that point, if al goes according to play, we will have saved enough to pay off the entire rest of the mortgage.
 
To add - I totally understand that those saying invest instead of overpaying are correct. But I'm overly risk averse, and like that the overpaying has a definite aim, value and goal to reach.
So that's what we've decided to do even though it's very likely to be the less profitable option.

The difficulty is, when we've paid off fully, knowing what the hell to do with the money then!
 
Scam said:
I'm certainly going to look into what you've been talking about here. Even though I'm arguing for paying off a mortgage quicker whilst rates are low, I've always planned to start a more 'risky' saving strategy now that I'm not saving for the aforementioned house deposit.

However, we're currently on a very low fixed rate for our mortgage. I'm not saying we couldn't afford it, but when our 5yrs fixed is up, if rates have gone through the roof then there's a 'slight' worry that we'll end up paying a lot more when we come to get a new deal. Which would suck. So part of me is thinking, try to hit the mortgage as hard as possible to ease that potential pain. I can't see anything but rates going up now, and I don't want to be in the position of finding a new mortgage deal that is for example paying double what we currently do.
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There is a consideration for interest rates in the equation above, and as someone else mentioned they prefer to overpay to further secure their roof over their head (which is a completely valid objective).

If you're keen to start saving definitely look into it - SimplyFi as has a free getting started guide which is based on the same principles as the book I mentioned:
https://www.simplyfi.org/getting-started-guide
 
malachi said:
You find a way, people always do!
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Fair point. Maybe I should have said what the hell to sensibly do with the money. :D

We're avoiding the question of how to invest currently by paying off the mortgage instead. But once that is done, we will have to properly decide how, where, and how much we want to invest.
 
bazzabear said:
To add - I totally understand that those saying invest instead of overpaying are correct. But I'm overly risk averse, and like that the overpaying has a definite aim, value and goal to reach.
So that's what we've decided to do even though it's very likely to be the less profitable option.

The difficulty is, when we've paid off fully, knowing what the hell to do with the money then!
Click to expand...

The way I justified it, is that whilst I'm at a good point in my career, I'd rather invest more for my future whilst I can afford to pay off a low interest mortgage - and if times get tough, I can pull back on the investment and focus on the mortgage. I'll be older by the time the mortgage is paid off, even if if I over pay I'll regardless be in my 50s when I pay it off, and I'd like to start ramping down in my late 50s rather than work as hard as I am now. I'm planning on being able to finish my mortgage off whilst then having more cash for enjoying myself, supporting the kids more etc...

There's no right or wrong way of looking at it though, it's an emotive subject money, and as long as it is working for you and making you feel better that's all that is important, as well as quality of life.

Watch whilst my life falls to pieces and everything I've just said slaps me across the face! :( :o :D
 
I pretty much split spare money 3 ways. Can fiddle with amounts depending on savings goals or isa limits, but that's the general gist.
1 - savings account to spend on stuff I want. pc, car, whatever.
2 - mortgage overpayment.
3 - passive investing in S&S ISA.

As always, pay off expensive debt first, and make a rainy day fund, and make sure you're making intelligent pension contributions. See UK Personal Finance Flowchart: https://ukpersonal.finance/flowchart/

btw that whole "overpayment reserve" thing is a massive scam and should be illegal because it does NOT count towards your LTV, so if you're overpaying to access a better rate you'd better give them a call.
 
bazzabear said:
Fair point. Maybe I should have said what the hell to sensibly do with the money. :D

We're avoiding the question of how to invest currently by paying off the mortgage instead. But once that is done, we will have to properly decide how, where, and how much we want to invest.
Click to expand...

Having no kids this is even more pertinent.

I don't want to die with a big old cash pot.
I also don't want to run out of money and live another 5 years..

At some point I'm gonna have to figure this out
 
Mines 35 years and near 400k.....Will take a while or a windfall :cry:.

Id rather pay more to live in a decent gaff/nice area though.
 
413x said:
Having no kids this is even more pertinent.

I don't want to die with a big old cash pot.
I also don't want to run out of money and live another 5 years..

At some point I'm gonna have to figure this out
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It's not that bad of a situation.

I've got elderly relatives who aren't even spending their monthly state pension let alone their private pensions.

Retiring in your 60s and assuming there's no health issues, then the world is your oyster really.

By the time you get to late 80s, health isn't so good. You're no longer in a position to have these lavish holidays, or go out and buy a nice fast car etc etc. So life then becomes significantly cheaper. You're basically paying out for energy/water/council tax/food/entertainment and that's about it.

Essentially you need to make sure that state or private pension will pay out enough to cover that in your later years.

Also if you really are worried about running out of money before dying, then you might want to look at an annuity. As this will guarantee an X payout each year until death.
 
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