We just got our first mortgage this year.

I am 25 and my fiance is 24. Currently have £119k left to pay over 29.5 years!!

I think that may change substantially in years to come but its a start!

Well generally, salaries rise quite a lot in your 30s in professions, so the debt gets proportionally smaller by quite a bit over the years, although most people keep trading up to maintain the same debt level (which seems mad to me).

However, how does the model change if I pay the overpayment as a lump sum at the end of the year?

Just added an annual o/payment field for you

Cheers mudshark.

So, annually the same x 12 monthly figures make no difference to the number of years remaining, but do make a difference to the final amount paid (capital +interest). How so the former, becuase, paying (for example) £200 in monthly 1,2,3 etc is reducing an amount of interest calculated up to 12 months prior to the annual payment – yet proves more expensive?

Or is the difference of (in this example) £200 per month over a year really inconsequential in the scheme of things?

The reason I ask, is that my mortgage company will only make a term reduction if lump sums are paid each january, and charge a £30 admin fee to do so, whereas a monthly overpayment is used to reduce the ongoing monthly payments the day after its paid – ie no reduction in term.

So my thought is (again using my example) is to stick £200 per month in an ISA / savings account, let it earn 3% and then use it for the January payment – My goal being term reduction.

Does my plan sound overly bonkers?

I’m not sure I follow you. Paying 200/month is slightly better than 2400/year right? I’ve fiddled a bit with it and the figures look sensible to me but you think not? The paid off yrs box indicates a shorter term for monthly payments and the total paid figures are lower too are they not?

Your plan is OK though I’d be annoyed at the fee! The thing is why not do the monthly overpayment? OK the amount you have to pay each month is reduced rather than the duration reduced but surely if you overpay each month you’ll be lowering what you owe until eventually you’ve paid off the debt which will be at an earlier date than initially planned. The lender will have to stop taking your money then as you owe nothing. Do this and save £30pa IMO.

See mud shark, the mortgage company ate clever. They won’t process a capital repayment monthly unless its over £500 per month.

They will accept lower payments, but they are “stored” until January and processed as a single annual payment. Therefore unless I could afford £500pm I may as well earn the interest rather than them.

There is of course nothing stopping me paying every 2 or 3 months of course as I reach the £500 mark, to get the capital down sooner.

Double post

i made sure i wasnt falling into that trap when i bought.

the nature of my work meeds fairly regular bonus payments if i opt to work abroad so wanted to make sure i could capitalise on the bonus rather than frittering it (all) away on bikes and land rovers !

To add and get back to the thread rather than my own circumstances a bit, , I’m indecisive about the “pay mortgage early” option as a full time commitment or “have fun now” as others have mentioned)

I guess my view of paying off annually is that money is always there for the optional luxuries – ie bike frame snaps or TV blows up – but when I get to jan and don’t need it, into the mortgage it goes.

Of course if any of you are lucky enough to have a tracker mortgage with a rate of around .1 above base or even 1.0 above base, then the last thing you want to be doing at the moment is paying any capital off your loan.

The other thing about mortgages is that whilst its nice to think about paying them off…..its far better to extend your mortgage to enable you to move up or extend etc. As sure as eggs is eggs, property will rise in value in the long term, so if you keep pushing on, you will (when you retire) potentially have a house that you can recoup a chunk of capital and downsize.

Unlike a pension, that enables you to only take a 25% of the fund in cash, leaving the rest to the vagaries of how much life you actually have to live, you will have complete control of that cash.

So…as long as you can afford the payments keep borrowing!

Oh well, that’s a big part of why I went for an offset mortgage – 0.49% tracker over base rate.

So…as long as you can afford the payments keep borrowing!

Thing is you never know if you can afford the payments. Recessions / unemployment / ill-health can all come along and wreck any well intentioned plans. Personally I’m very happy being debt free and intend to stay that way!

Indeed, if you are on a low interest rate then paying it off is silly; far better to save or invest the money.

We have been in a position to pay it off for years now, but it’s offset against savings so costs nothing, and better that we have the money than the bank. It’ll be gone anyway in 4 years when I’m 43.

Good jobs and no kids helps, but mainly it’s been luck. The house we owned between ’97 and ’05 went up from 80k to 200k simply due to the economy. Had we not owned a property at that time it would have been much more expensive to get going on the property ladder.

Thing is you never know if you can afford the payments. Recessions / unemployment / ill-health can all come along and wreck any well intentioned plans. Personally I’m very happy being debt free and intend to stay that way!

Very true…and if thats what works for you then thats fine. However, if you want to get anywhere in life you have to take a few risks. Its amazing how recessions/unemployment can all be dealt with if you have the right mindset…..but, at the end of the day if it really does all go tits up, you can always sell the house!

Indeed, if you are on a low interest rate then paying it off is silly; far better to save or invest the money.

We have been in a position to pay it off for years now, but it’s offset against savings so costs nothing, and better that we have the money than the bank. Payments are fairly minimal so actually won’t greatly improve our lives when we arent making them anyway. It’ll be gone anyway in 4 years when I’m 43.

Good jobs and no kids helps, but mainly it’s been luck. The house we owned between ’97 and ’05 went up from 80k to 200k simply due to the economy. Had we not owned a property at that time it would have been much more expensive to get going on the property ladder.

but, at the end of the day if it really does all go tits up, you can always sell the house!

Try doing that in Ireland at the moment.