Should you overpay your mortgage in the UK?

Should you overpay your mortgage?
Does the idea of paying off your mortgage early appeal to you? The faster you clear your loan with overpayments the sooner you can think about things like early retirement or financial independence. And you'll also save thousands of pounds, if not tens of thousands of pounds, by reducing how long you pay interest for. No brainer right?
Well, it's always not that simple and there are pros and cons to overpaying on your mortgage. In this video I've looked into more detail on these and other benefits, but I've also shared when it might not be the best thing to do.
Then I've shared how to actually do it here in the UK - including the important step you need to take to make sure you don't actually get hit with penalties for doing it.
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#PayOffMortgageEarly #OverpayMortgage #MortgagesUK

[@bEEBO178]

Paid off my mortgage aged 43. Have zero debt, not even a credit card. They're an absolute ball and chain. Feels amazing being free!

[@BeCleverWithYourCash]

That's amazing!

[@minimad8793]

Being debt free can harm your credit worthiness as a guy I spoke to paid his mortgage off, bit then needed a loan but couldn't get one as he had no credit trail. One to think about

[@exerciseisantidote9337]

@@minimad8793 get a credit card

[@minimad8793]

@@exerciseisantidote9337 yeah I did say that to him but don't think he understood lol

[@samc12345]

I see this a lot. I work for a bank as an underwriter, specifically in their consumer finance department. Its my job to say yes or no to people applying for finance. I often see people in their 60s and 70s who have paid their mortgage off years ago with a good pension and plenty of cash in the bank but with an empty credit report. No mortgage, no credit card, not even a mobile phone contract. They can't understand why they've been declined for a loan even though they have more money in their account every month to pay the whole thing off at once.

[@maxinechivers3210]

I began a 25 year mortgage in 2010. In 2012 I went to an appointment and I hadn't pay back much. So I changed it to 10 years. From 2013 to 2017 I over paid my mortgage. I wished to owe 25,000 pounds in the start of 2016 and get it to 10,000 pounds by the start of 2017. I used a regular saver to reach the 3500 pounds needed to pay off my mortgage in June 2017. Now I have an emergency fund and I began paying into a pension in May 2019.

[@billyreinshaw8225]

Maxine Chivers There might be fake ones out there but real one do exist contact *@Darkearlsimmons* on *telegram* he is the real vendor, I got my cc with high balance from him yesterday 🙏

[@minimad8793]

so a year on, how is the mortgage free lifestyle going

[@paceyplodder5911]

Interesting talk; thank you. I overpay my mortgage and the good thing with my bank is that the overpayments can be used as a buffer if I fall behind with the repayments. This is really beneficial imo.

[@ozone063]

Which bank do you use? And how does that reduce your interest, is the overpayment actually used up to reduce your LTV?

[@paceyplodder5911]

@@ozone063 We use Nationwide (in th UK) although I believe many mortgage providers offer this protection. Other protections include taking a mortgage-repayment-holiday where you can take a break from paying your mortgage for up to 3 months and not receive any penalties from the bank (useful peace of mind in the event of job losses or other difficult circumstances). The overpayments go towards reducing our loan and this in turn means our interest payments have reduced. The LTV lowers every month but overpaying means that this is excellerated. The total we have overpayed is tracked on my mortgage statement and is very useful to have. I hope this answers your questions?

[@ozone063]

@@paceyplodder5911 Thanks for the detailed explanation, that's very useful. We are considering getting a mortgage soon, so we're in the process of researching. My plan is to use the entire 10% yearly overpayment allowance and also considering a shorter mortgage term which will take up 50% of our combined net salary. So protection is important in case one of us loses a job or something unforeseen happens. If I lose my job, my wife's salary will not be able to cover the monthly payment as her salary is lower than mine, do you have any suggestions for my situation?

[@hwasooju]

@@ozone063 one tip i found useful when determining the mortgage term is to go for one where the monthly payment will hopefully still be affordable during rainy days. this is because you can always overpay when you have the additional income, and have the peace of mind knowing that (in this case) you can still afford the minimum repayments if you lose one source of income. it just offers more flexibility than being tied to a higher monthly repayment which you may not be able to make. with nationwide, they also offer the option to re-calculate the mortgage term annually if you make regular overpayments; again offering more flexibility if you later want to reduce your mortgage term.

[@susanlewis1953]

Excellent video. Thanks 😀

[@ep1929]

I'm overpaying £500 per month on top of around £500 normal payment - so £1000 per month & it's crippling me to be honest. However, I will take the pain for another 22 months as then I will be free, no worrying about interest rates, no worries about economy, no worries about job security etc etc - I think the pain is worth it.

[@BeCleverWithYourCash]

That's amazing - just two years to go!! Good luck

[@angelwings1]

That pain is going to be so worth it!!! Well done on all your hard work!

[@samc12345]

EP1929, how's it going? 12, 13 months left? I'm rooting for you!

[@ep1929]

@@samc12345 Hi there, I have about 14 months to go. To be honest, this time next year I'm forcast to have around £3,000 owing - I won't be particularly bothered about an amount like that. Thanks for asking by the way!

[@JunaidJDM]

How long have you been paying double for and what will the total length of your mortgage be now compared to what it would have been if you didn't overpay?

[@stephen6262]

Andy great video. Im overpaying. Nothing feels better than paying off your mortgage. Definitely overpay and invest if possible

[@ahmedhosny2412]

This is so lovely. Thank you very much.

[@BeCleverWithYourCash]

Thank you too!

[@rafaelpiai]

Congrats, brilliant channel! I do have a question please. Which are the best mortgages products when I am willingly to attack the capital without being penalised for overpayments, cheers!

[@lethalno1]

Great video one of the best and its a year old.

[@BeCleverWithYourCash]

Thanks Shane!

[@lethalno1]

@@BeCleverWithYourCash no problem mate. I've just subscribed aswell 👍🏾

[@jackhorrey5962]

Great video. Very well explained. Instead of over paying the mortgage why not use the money for a deposit for a buy to let in a cheaper higher yield area of the country. This would give you income.

[@BeCleverWithYourCash]

Thanks Jack!

[@gogisidhu5020]

Thank U. So well explained u and I brother share a passion for money Hahahah . I do have Q tho.

[@529mt]

Some text/numbers on the screen would have been great in this video. Even screen share form excel

[@elisab7652]

Hi Andy, excellent video so thank you. I have a question for you or anyone else who's watched this. I have a 10% annual cap on overpayments. Is there any difference between paying a chunk of that 10% at the end of each month or doing a lump payment at the end of every year??

[@BeCleverWithYourCash]

Hi Elisa. I don't think so, but it's best to check direct with your mortgage provider. One thing to check is whether that 10% is based on the initial mortgage loan or the balance at the end of each year (which would mean that limit reduces every 12 months). It's also likely to be measured on a calendar year rather than a rolling 12 months.

[@elisab7652]

@@BeCleverWithYourCash Thank you Andy!

[@nota8386]

Top, common sense advice. I started to overpay for a few years, then used that money towards an extension rather than borrow more.Hsve now started overpaying...only got 6 years left but need to pay offquick because means I will be able to jack in my stressful job(teaching).

[@BeCleverWithYourCash]

Thanks No Ta! Good luck with clearing it

[@harrygilbert3738]

We overpay out mortgage to the maximum allowable (10%) per year. Our 3 year fixed term Is coming to an end soon, and we’re planning on staying 12 more months (getting a 12 month fixed deal). With regards to the term of the mortgage, should I optimise the term, thus, optimise the monthly repayment, or take out the mortgage term in-line with the current overpayment? (Currently paying £1000 per month - £623 overpayment) For example; if the 12 month fixed @ 20 years is £500 p/m, overpay £500 Or, If the 12 month fixed @ 10 years is £1000 p/m, overpay zero. Any advice welcome. Great video by the way, very informative. I’m sure many will learn a lesson or two!

[@BeCleverWithYourCash]

Hey Harry. Great question. It's usually going to be much better to have the flexibility to overpay if you can afford it, rather than be tied into it every month. So go for the 20 years at £500 and overpay £500. It's the same end result but you can stop overpayments if you need to.

[@harrygilbert3738]

@@BeCleverWithYourCash thanks! Was hoping you’d say that!

[@johnkillick6061]

Hi, I found out I was only allowed to overpay the maximum of 10% whilst on a fixed term. Now it’s ended I pay as much as possible. All the best

[@BeCleverWithYourCash]

Good luck!

[@lazycarper]

could you not still have paid more and a small charge?, or you just could not have paid more even if you wanted to?

[@Asif24960]

In 20 months from today I will be mortgage free.

[@searchbarwebs]

Who do you have your mortgage with and who do you recommend?

[@sheenamaclean8324]

"so you have money if your dishwasher breaks" First world problems eh ?!

[@minimad8793]

can it be worth reducing the mortgage term when you come to re-mortgaging? I am already overpaying by £250.00 a month so having looked around, I can reduce the term by 3 years when my fixed rate finishes and still pay £25.00 less a month on my current obligatory payment.

[@BeCleverWithYourCash]

So it depends on the flexibility of the mortgage. For example, if you can make unlimited overpayments there's no need to reduce the term. You pay more and you can always reduce the monthly payments later to spread out over the term. But if for some reason things get tight and you need to reduce what you pay, you can do that no problem.

[@minimad8793]

Update. Bit the bullet and took 4 years off the mortgage term, effectively now paying the same amount albeit £1.50 a month less so saving 4 years worth of interest also.

[@scalarnai]

If you want to make regular overpayment, do you need to notify you lender or would that incur a penalty charge by your lender

[@BeCleverWithYourCash]

It will depend on each lender. For my mortgage I can just set up a standing order or make ad hoc payments, but not all will be the same, and some will have limits. So check with them first!

[@ep1929]

@@BeCleverWithYourCash most are 10% per year of the original amount borrowed. So say I took an £84,000 mortgage out, I would be limited to £8,400 overpayment per year.

[@lazycarper]

ANDY - your 10 year mortgage you over pay on but wont finish before 10 years due to the extra charge, have you worked out the extra charge amount you would pay, im guessing it still works out much better if you pay it of as fast as you can and just pay the extra charge ??

[@paulfaulkner6299]

What aggravates me is that a bank up front charges you to borrow money from them (fees) then the thieving scumbuckets charge you for overpaying them back. And where is the government on this?

[@bimiuk4051]

I am almost 40 and the thought of a loan over 25 years is scary :( oh my god!!

[@minimad8793]

Gives you more an incentive to repay quicker where you are able.

[@angelwings1]

What should scare you more is paying someone else’s mortgage (rent) when you’re a pensioner.

[@lloydbatkin1452]

I just overpaid 10% before mt renewal.... My new payment per month was predicted to be £580 However oaying the 10% had increseaed to 485 from 464

[@laceyangel9805]

I’m with Santander on 7 year fix. Allowed to pay max 10% year max. I pay this off then carry on paying more. They let you do it but charge you 5% penalty. So if I pay off £500 they charge £25.

[@lazycarper]

it still works out better to pay the penalty im told,

[@exerciseisantidote9337]

I'll rather pay the penalty than the interest

[@pseudocode6506]

You haven't mentioned inflation though. With the inflation rate high, if you have a 30 year mortgage, if you overpay by £1000 today, that £1000 might only be worth £500 towards the end of the mortgage. So if you reduce the mortgage term by a year, you need to weight it up against how much that overpayment is going to be worth in real terms at the end of the term. In real terms, it costs you more to pay to back the mortgage today that it will in the future. So if you're considering, for example, overpaying and then getting an extension in a few years, the cost of the extension will go up with inflation, but the debt will go down in real terms and you're better off getting the extension or other major purchase now rather than using that money for the mortgage. Paying £10,000 of your cash at today's value of the pound means you're not paying that £10,000 when each pound is worth less in real terms, ultimately £10,000 costs you more today than it will in 25 years time. Reducing the term means you're paying more in real terms because you're paying more now when the value of the pound is higher than in the future. It would be interesting to run the actual numbers on this, but overpaying may not be the sensible choice in a lot of cases. With the interest rate below the rate of inflation surely it's better to wait. You've been given a chunk of money at the value of the pound today but you're using it to remove at payment you'd otherwise be making in 25 years when that amount isn't worth as much.

[@ozone063]

I took a mortgage at the peak of pandemic, a year ago and have fixed it for 5 years; very happy with the rate (1.3) in comparison to today's rates. Should I be looking to overpay or look to invest instead? What's the best strategy

[@lloydielloydie821]

Whilst your on Fix rate, this when you really need to hammer it And pay off as much as you can. If you don’t, When the deal comes to end and you’re put on higher rates, it won’t belong before you realise this will wipe out all benefits you had on the lower rate.

[@Crabfat809]

Agree with the above. Just pay it off

[@delatroy]

Unrelated but it’s amazing to think that the bank doesn’t actually loan you anything. It simply creates the money out of thin air. In this way both the borrower and lender come to the table with nothing other than the borrowers future ability to pay.

[@samc12345]

The bank doesn't create money out of thin air. Put simply it buys the house for you and you pay them back.

[@delatroy]

@@samc12345 it buys the house by creating debt that you pay back: thereby creating new money

[@doreeneb]

@@delatroy no, the money comes from those who have invested money in the bank. In essence, the money they are lending to you is other people's money paid to them or their savings held with the bank. It is a recycling of money.

[@delatroy]

@@doreeneb no it’s not. That’s what most people believe though

[@LawrenceTimme]

@@doreeneb lol not it doesn't. It's called fractional reserve banking. The bank can loan the same money to multiple people at once. It's a complete scam.

[@shephelj03]

I'm allowed to pay 10% in overpayments a year. however is the YEAR from jan 1st or the date i purchased the home?

[@BeCleverWithYourCash]

Good question. I expect the year starts on the anniversary you started the mortgage but you’ll have to check with your lender to be sure

[@billyreinshaw8225]

There might be fake ones out there but real one do exist contact *@Darkearlsimmons* on *telegram* he is the real vendor, I got my cc with high balance from him yesterday 🙏 Getonit

[@yarrumblob]

James Getonit I am with Halifax, I can pay 20% of whatever the balance is on the 1st Jan. Your provider may be different.

[@billyreinshaw8225]

I never knew this is gonna workout until I work with him *@Darkearlsimmons* on *telegram* he is the best

[@shephelj03]

@@yarrumblob thanks robert. I will phone them and ask. I think it's only 10% for me. however I am with halifax also.

[@SmithyD86]

Please remember that paying £500 or £1000 a month is likely to take you over your 10% threshold allowed for overpayments, which could lead to big charges. Look at how much you're allowed to pay per year, or per the whole term, before you make large overpayments.

[@ep1929]

£500 is ok for original mortgage of over £60k, the 10% rule is for the original amount, I moved my mortgage to nationwide with £63k, I now owe around 11k but I can still overpay £6k a year as the original amount was £63k.

[@BeCleverWithYourCash]

And some mortgages don’t allow any overpayments while others have no limits. So it’s important to check

[@ep1929]

@@BeCleverWithYourCash never heard of a mainstream lender without the 10% overpay allowance. Ive been with Halifax, Woolwich (Barclays), Santander, NatWest, Nationwide and they all had the 10% overpayment allowence.

[@BeCleverWithYourCash]

First Direct for one, and there will be others, though of course each deal could be different over the years

[@lazycarper]

when you say big charges going over the 10% allowance, im thinking its nearly always much cheaper to over pay over the threshold and just pay the extra charges aswell,lets say they charge a 3% fee on any amount over your 10% allowance you still bringing the capital down, so less years paying extra intrest anyway?, or am i wrong???

[@nikkik3263]

I rather just pay off my mortgage early

[@GameRaft24]

Might sound good to you but if another disaster occurs such as COVID, and you have no savings laying around to pay the rent etc... banks can repossess your property. Research how many homes have been repossessed last year due to this.

[@lethalno1]

@@GameRaft24 try split it into two, over pay and savings

[@exerciseisantidote9337]

@@GameRaft24 stop being negative.

[@GameRaft24]

@@exerciseisantidote9337 pragmatic is the way to live, not optimism my friend

[@markdillon5494]

@@GameRaft24 Why would there be rent to pay if the mortgage is cleared off?

[@lxnny2357]

In the same time, you make better returns with safe investments. Why rush to reduce the banks equity? Invest it and pay off in batches seems safer.

[@Stevo_YouTube]

What's a safe investment?

[@lxnny2357]

@@Stevo_KZbin an index tracking fund (e.g. SPY), a blue chip stock(e.g. KO, 3M), dividend paying stocks like dividend kings/aristocrats (JNJ), or bonds. All have reasonable returns usually above a mortgage, and moderate to low risk profiles.

[@exerciseisantidote9337]

@@lxnny2357 No ta, sounds too much. I'll stick to paying off my mortgage early ta..

[@lxnny2357]

@@exerciseisantidote9337 what is ta? Also go for it. My point was moreso that paying off ahead without any specific plan in mind was a poor plan for almost every lifestyle. The only reason to overpay on a mortgage is to make yourself feel better. But, if you want to make a sound financial choice, it's not in the top 3 imo.

[@LawrenceTimme]

Because having your own house is much better than having a bunch of useless stonks in a crash or a bad time.

[@infernogamers168]

Can you cancel an overpayment anytime?

[@BeCleverWithYourCash]

Yes there's no commitment to an overpayment, unlike a mortgage on a shorter term which requires the payment.

[@infernogamers168]

@@BeCleverWithYourCash amazing! Thank you for the great information!

[@chrismorgan6057]

The idea of paying of their mortgage gives people comfort but for most people in the current environment (low interest) paying of your mortgage quicker is accepting the best return on your investment will be around 2 - 3.5%. Factoring in a consistent performance after inflation of 7% in the S&P 500 going back decades the stats pay £500 a month over 12.5 years provides you with £120077.93 and you would earn £45077.93 in interest. The money generated is yours to use as you wish and is instantly available unlike the money all ploughed into 1 asset your own house! I agree with your emergency fund advise however the real danger is your house is not an ATM you can't simply take cash out when you need it and should the worst happen with family job losses and other of life's issues such as pandemics the bank won't be lending. This whole subject is far more complex than most give credit you could get independent advise or get the knowledge all I would say is don't take anyone's advise at face value always be sceptical. I actually took money out of my house set up my own property business and next year will be leaving the day job none of which I would have done following the pay of your mortgage as quick as possible advise.

[@LawrenceTimme]

You should pay it off fast while the interest is low so that when the interest goes back up you aren't paying loads in interest......

[@chrismorgan6057]

@@LawrenceTimme and as stated 2 years ago I actually left my job August 2021 and doing very nicely from not paying my mortgage off and even extending it. (NOT financial advice) but each to their own. As I said there is way more to it than any KZbin video can hope to explain.