Overpaying mortgage in current climate

D

dublinaam

Registered User
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Is it a good idea to overpay my mortgage when rates are low and expected to go lower or is this better to do when rates are higher?
 
Better to put it into a good savings account to build up a contingency fund. Provided you don't spend it you can still use it to repay the mortgage later.
 
We decided to overpay, leaving payments at the same level as before the cuts. We are 5 years into our mortgage and so little of the capital has been paid off. By overpaying at the current rate we are chipping away at the capital each month and based on continuing to overpay at the same rate ongoing, we should knock about 10 years off the term.
 
Note that provided that the interest rate on the savings account is higher than the one on the mortgage you don't lose anything by postponing the repayment. The money builds up in the savings account and when it's finally used to make a repayment it makes an even bigger dent in the mortgage.
 
But don't forget to factor DIRT into the comparison between the rate you're paying on your mortgage and the rate you'd get if putting it on deposit instead.

In addition, you'll need to constantly monitor the rate on your deposit account if you choose that option - inertia is the big enemy here....a market leading deposit rate when you open the account suddenly, and surreptitiously, falls and your strategy no longer pays out.
 
There might be a bit more risk keeping money in a savings account for longer term. (Despite the government 'guarantee') I like to save for 4 or 5 months and then pay this lump off the mortgage.
 
Personnally speaking we're paying off more at the minute as the drop in interest rates means we can afford to. At least if it's gone against the mortgage there is no risk of us spending it on something else.Also if at some stage in the future one or both of us lost our jobs and we were struggling to repay, I'd like to think that the bank would look more favourably on us if we were "ahead" of where we should be
 
This is true.

KBC Homeloans for example will allow you to withdraw the overpayments should you need it within 48 hours without penalty.
 
We are building up a reserve fund of 6 months repayments (which will be put on deposit) and then use any surplus cash thereafter to pay down the loan. The rainy day fund as my grandparents used to say.
 
I have now diverted money I was putting into a pension (and which was just disappearing: I'm still very mad with the pension co. that they did not alert me about what was happening, so much for customer care!) into an overpayment of mortgage. It will reduce the overall interest to be paid and the time frame as well. A far better prospect I think in current clime.
 
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