# Mortgage Overpayments



## DaveDesign (May 6, 2008)

I hope someone more clever than me can help!

I'm considering making over-payments (depending on how they calculate my interest), But assuming im happy with this the only criteria is:

10% of outstanding mortgage balance each year.

So.... does this mean that if for example on the 1st april 2014 my balance is 100,000 i can over pay by up-to 10,000 up until the 31st march 2015 ???

This is probably really simple stuff but is just no clicking with my brain. Can't find anything useful on Google, just bloody calculators!

Thanks in advance Dave.


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## Naddy37 (Oct 27, 2005)

Just make sure you dont get penalised for making overpayments, as strange as it may sound.


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## DaveDesign (May 6, 2008)

Only criteria is 10% without penalty. Just as above though can't figure out how this 10% works out. Not a lot of info online.


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## staffordian (May 2, 2012)

DaveDesign said:


> ...
> 10% of outstanding mortgage balance each year.
> 
> So.... does this mean that if for example on the 1st april 2014 my balance is 100,000 i can over pay by up-to 10,000 up until the 31st march 2015 ???


Unless there are more details in your "small print" I'd advise getting their interpretation in writing, either email or snail mail.

It may be 10% of o/s balance in any 12 month period, or the year may be the banks financial year, or the year may start with the date your mortgage started.

Well worth making sure you get it right


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## adamb87 (Jan 13, 2012)

give them a ring and see what they say and get and understand an example to get it straight in your head. think mine is allowed 10 % OP but they way things are going thats never going to happen !!


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## S63 (Jan 5, 2007)

I'm no financial expert but with interest rates so low, it's surely still a borrowers market, is it really beneficial for you to up your repayments?


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## DaveDesign (May 6, 2008)

My debt is in check, locked at 0% and due to be paid off this year. Which has been a real effort i can tell you!

My current mortgage deal ends soon so looking again, the overpayment will interest me, Don't get me wrong we are not talking a lot, perhaps an extra 50 to 150 a month, Hopefully knock a few months/ years off and leave me in a slightly better position to tackle my equity loan in the next 10 years.

I will give them a call tomorrow, I know im not paying off millions extra but would be mighty p****d if i got it wrong and was out of pocket!

Shame these companies make it so awkward.


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## LeadFarmer (Feb 23, 2011)

DaveDesign said:


> Don't get me wrong we are not talking a lot, perhaps an extra 50 to 150 a month, Hopefully knock a few months/ years off...


A £50 overpayment is definitely worth doing. Start doing it straight away. Worth asking them if you can amend the overpayment amount at any time, incase circumstances change.

Check if your mortgage charges interest annually, or daily. Overpaying on the former will not be as good as the latter.

I started overpaying in 2009 when my tracker mortgage payments plummeted along with interest rates. They dropped by about £300/month so I kept the payments similar to how they were.

Im of the opinion that despite such low interest rates, anything that helps get rid of your mortgage has got to be a good thing. Also, theres no point putting money into an investment if the returns are eaten up by a current debt.


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## fatdazza (Dec 29, 2010)

I am with Nationwide and with our fixed deal we can over pay 10% of the *original mortgage value *each year without penalty.

I suggest you contact your lender for confirmation as all have different terms.


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## R14CKE (Aug 10, 2012)

fatdazza said:


> I am with Nationwide and with our fixed deal we can over pay 10% of the *original mortgage value *each year without penalty.
> 
> I suggest you contact your lender for confirmation as all have different terms.


Same here


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## telewebby (Apr 27, 2009)

well worth doing if you can. at the moment every year i pay off the equivalent of 3 years of my mortgage which is a sizeable chunk. If i need anything extra that month i dont make the overpayment

alex


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## gtechpete (Aug 16, 2010)

Good thread and some useful info. 

I arranged my first mortgage early last year (with Nationwide) and similarly I'm trying to get my head around the over payments system. In my mind I am thinking it would be more lucrative to not pay it off sooner (borrowers market at the moment as mentioned by someone else). However, I still like the idea of paying it off sooner rather than later as it's is a bit scary having such a large debt hanging over me (albeit a great long term investment etc etc).

I found out to my disappointment last month that mortgages are not readily available on commercial properties or agricultural land. If anybody has any experience/info on how to raise finance for that sort of purchase (via a Building Society) please do post up. :wall:


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## S63 (Jan 5, 2007)

The above says it......emotions say pay it off ASAP, money men will tell you to borrow to the max for the forseeable.


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## empsburna (Apr 5, 2006)

Check to make sure that the overpayment gets applied straight away and doesn't just get put towards the balance once. Will change the amount of interest paid otherwise and might be worth paying one lump sum a year.


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## fatdazza (Dec 29, 2010)

S63 said:


> The above says it......emotions say pay it off ASAP, money men will tell you to borrow to the max for the forseeable.


If your savings are earning less interest than you are paying on your mortgage, then it makes sense to pay off more of your mortgage.

It only makes sense to max out the mortgage if you can earn a better return elswhere


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## Bulkhead (Oct 17, 2007)

I'd say pay as much as you can afford/allowed without penalty. My mortgage should be $1400 per fortnight but I pay $2000 in which, at current interest rates, has cut 10 years off my mortgage duration and saved a shed load. With the returns on savings being so low, it makes sense to save money in other ways. I also gave an offset account so keep 15k in there which reduces my interest charges further.


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## LeadFarmer (Feb 23, 2011)

Even though borrowing is currently cheap, it must still be a good thing to pay more into your mortgage. One day in the future if interest rates are high then you will be wishing you'd already paid a chunk off.


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## DaveDesign (May 6, 2008)

Indeed my debts are 0% which makes my mortgage my most expensive, Well, I also have an equity loan which has higher interest but this isn't so easy to get rid of! but currently the plan is to rid my 0% before it spikes to 18% and then overpay a moderate amount on my mortgage until I reach a position where i can get shot of the equity loan and start all over again !

Will phone and find out my overpayment terms with RBS. 

A good few of you chipping in on this thread so will post back.

It's odd they don't freely advertise the full details of over-payments on their site, well not that i can find.


P.S....... What are savings these days? I only have debts!!!


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## LeadFarmer (Feb 23, 2011)

I guess it's not in the lenders interest to help you pay off the mortgage. 

My mortgage interest rate is 0.25 above base rate, so currently it's 0.75% which is almost for free! I've often thought about borrowing the £100,000+ equity I have in my house, and investing it somewhere that pays interest higher than my mortgage rate. In fact i'm seriously considering a buy-to-let property.


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## shine247 (Mar 1, 2010)

LeadFarmer said:


> I guess it's not in the lenders interest to help you pay off the mortgage.
> 
> My mortgage interest rate is 0.25 above base rate, so currently it's 0.75% which is almost for free! I've often thought about borrowing the £100,000+ equity I have in my house, and investing it somewhere that pays interest higher than my mortgage rate. In fact i'm seriously considering a buy-to-let property.


They should lend to need, borrowing a sum just to invest is not always an option with all lenders. Borrowing for a BTL yes but it depends on your lender, a good lender may require proof of what you are buying to confirm use of fuds and purchase price. Just for ref.


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## LeadFarmer (Feb 23, 2011)

They may not lend the full equity to me, based on our joint salaries. And when they discover the monies are to purchase a buy-to-let they may demand we take out a specified buy-to-let mortgage with a higher interest rate?


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## shine247 (Mar 1, 2010)

LeadFarmer said:


> They may not lend the full equity to me, based on our joint salaries. And when they discover the monies are to purchase a buy-to-let they may demand we take out a specified buy-to-let mortgage with a higher interest rate?


If you are securing the funds on your main residence I cannot see why they would want to put you on a btl rate. A btl mortgage is normally secured on the btl property and in the main the btl rental income is the repayment source. That is how people get loads of btl properties, the rent servicing the loans. It can get nasty if you want to apply for your main mortgage and have a btl or two, if you do not have a history of rent some may put the btl and associated costs in with your outgoings and you are over stretched.


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## CleanCar99 (Dec 30, 2011)

I overpay. Get rid of the debt whilst rates are low. When they ho up, and they will go up, you'll be used to the payments.
We've knocked several years off so far


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## LeadFarmer (Feb 23, 2011)

shine247 said:


> If you are securing the funds on your main residence I cannot see why they would want to put you on a btl rate. A btl mortgage is normally secured on the btl property and in the main the btl rental income is the repayment source. That is how people get loads of btl properties, the rent servicing the loans. It can get nasty if you want to apply for your main mortgage and have a btl or two, if you do not have a history of rent some may put the btl and associated costs in with your outgoings and you are over stretched.


Thanks. I guess to a certain degree, what I do with the my equity is irrelevent to the bank, and they just need to know that I can afford to make the new payments?

I owe about £100K on my house, which is valued at about £280K. So if I borrow back say £100k of my equity, would you expect the bank to look at our joint salaries to see if they think we can afford a £200K mortgage?


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## shl-kelso (Dec 27, 2012)

Regarding extending your mortgage borrowing against the extra equity in your house, the banks will indeed use the more stringent affordability tests imposed on them in the last year or two. So just because you have a lot if spare equity you are unlikely to be able to borrow from the mainstream lenders unless you can prove your income (and more importantly your "spare" income taking into account your existing financial commitments) is enough to meet the additional loan repayments on current rates with enough leeway to cope with interest rate increases which will be coming in the next few years.


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## shine247 (Mar 1, 2010)

LeadFarmer said:


> Thanks. I guess to a certain degree, what I do with the my equity is irrelevent to the bank, and they just need to know that I can afford to make the new payments?
> 
> I owe about £100K on my house, which is valued at about £280K. So if I borrow back say £100k of my equity, would you expect the bank to look at our joint salaries to see if they think we can afford a £200K mortgage?


It sounds like you have only used your income for the mortgage, it could still be in joint names now even so. If there is a second income that could be considered. Are you both named as owners, if not then you can still have a joint mortgage but it will be an A2 charge. That means the borrowing is in different names to the home ownership and you will need legal advice for yourself and to satisfy the lender.

For the amount you are considering, a responsible lender will be interested in the use of the funds to ensure it is an acceptable proposition. It is no good you borrowing £100k to purchase a btl and then you use it as a deposit and take additonal lending elsewhere which they did not know about and would not see it affordable. They will check things fully to "treat customers fairly" as well as due to the increase of fraudulent / dubious applications.

You would be wise ensuring you can meet all costs for two houses including rate rises without relying on the rent when you start out. If you doubt that then think about it hard. 

Sorry op, not really about overpayments.


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## lobotomy (Jun 23, 2006)

Bulkhead said:


> I'd say pay as much as you can afford/allowed without penalty. My mortgage should be $1400 per fortnight but I pay $2000 in which, at current interest rates, has cut 10 years off my mortgage duration and saved a shed load. With the returns on savings being so low, it makes sense to save money in other ways. I also gave an offset account so keep 15k in there which reduces my interest charges further.


Just when you mention fortnightly payments. One of my friends was in negotiations with his lender to pay his "monthly" mortgage payments in "weekly" payments. Because the interest was calculated daily even just splitting the calculated monthly payment into weekly payments essentially had him "overpaying" his mortgage. By his calculations it was saving him years and £xx'xxx's of pounds on his mortgage.


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## Rebel007 (May 7, 2013)

Regarding the BTL mortgage and mortgaging on existing property PLEASE be careful I got screwed big time over having a mortgage on my main residence and not a house I was renting out.

IF you have a mortgage on the property you are renting out you can offset the mortgage repayments against the rental income for taxation purposes, if the mortgage is on the property you live in then you have nothing to offset against rental income so pay a lot more income tax or as in my case suddenly find you owe the inland revenue a lot of money and end up selling the rental property to pay off the inland revenue.

I actually got lucky in one respect as I sold before the property market crash but still ended up paying 000's to the inland revenue unnecessarily.

Be safe get advice from an accountant before making the mistake I did.


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## Guitarjon (Jul 13, 2012)

I know a couple of people have said it's a borrowers market etc but at the end of the day most people would benefit greatly from having no mortgage to pay. The way I see it the quicker it's paid the better. 

How the interest is worked out is important too. As mentioned, if it's over a year or a day or month is very important. We only overpay our mortgage by around 50 pounds per month. We could pay more but then we have a bit more of a safety net should we need it. 

If you get charged interest monthly you only pay interest on the balance that month. 

So if one month you owe the mortgage company 100,000 pounds then pay 500 pounds the following month you only pay the interest %age of 99,500. If you paid an additional 50 pounds overpayment you'd only get charged the interest on 99,450 which is less meaning less overall interest. 

It works out differently over the year obviously. 

Also some lenders also say if you overpay x amount of money if you ever get into financial difficulty later on in the mortgage they will take into account the over payments. I know ours does. 

I always said I wanted to over pay the mortgage but until we found our feet I never got the urge too. A year later we got a letter saying the rates had gone down but we range them and told them to keep the payments the same so we make over payments. At least if they go up we won't have the shock of having to increase our own outgoings it will just mean we wont be over paying but all the time we have overpaid it has brought the overall total down therefore we will pay less interest in the long run. 

Sorry some right waffle there.


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## bigslippy (Sep 19, 2010)

Rebel007 said:


> Regarding the BTL mortgage and mortgaging on existing property PLEASE be careful I got screwed big time over having a mortgage on my main residence and not a house I was renting out.
> 
> IF you have a mortgage on the property you are renting out you *can offset the mortgage repayments against the rental income for taxation purposes*, if the mortgage is on the property you live in then you have nothing to offset against rental income so pay a lot more income tax or as in my case suddenly find you owe the inland revenue a lot of money and end up selling the rental property to pay off the inland revenue.
> 
> ...


Only the interest element , not the capital :thumb:


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## bigslippy (Sep 19, 2010)

LeadFarmer said:


> Thanks. I guess to a certain degree,* what I do with the my equity is irrelevent to the bank*, and they just need to know that I can afford to make the new payments?
> 
> I owe about £100K on my house, which is valued at about £280K. So if I borrow back say £100k of my equity, would you expect the bank to look at our joint salaries to see if they think we can afford a £200K mortgage?


You have to declare the purpose of the loan , lenders have loan to value limits depending on the purpose of the loan :thumb:

Yes they will look at your ability to service a £200k loan should you want to raise a further £100k


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