Last November, I bumped into an old friend who lives a couple doors down. They had bought their home 3 or 4 years before me and they told me all about how they were already well on track to pay it off in less than 10 years by making significant overpayments. They were putting off all big purchases in the short term to make their financial lives significantly easier in the long term. This would allow them to go part time in 10 years, spend significantly less time working and more time doing the things they love doing.
I became obsessed with the idea of making overpayments against my mortgage to bring down the mortgage term and save a tonne on interest. So I added my mortgage to my financial spreadsheets and posted about it here, it looks like this;
I can now track the balance remaining on my mortgage if I were to just continue making regular payments (red) against what I feel I could realistically achieve in overpayments (in blue) and the savings the blue scenario would give me. On average for my circumstances, every £1k I can pay as an overpayment today, saves me £1k in interest (i.e. reduces the overall amount I end up paying by an additional £1k).
My spreadsheet can also tell me how much interest my mortgage is accruing every day (nearly £10 per day in my case) and can tell me the exact impact each mortgage payment makes.
So my goal is to hit enough in overpayments each year to reduce my mortgage end date to around 2033 rather than 2046 and save myself around £30k in interest. This target also allows me to hit the 60% loan to value ratio about 10 years earlier and just in time for when my current mortgage rate runs out in 2023 which should save me even more as I should in theory be able to get a better mortgage rate sooner. I’ve tried to account for average trend in house prices in my area, but this will probably skew things a little for my LTV ratio.
So how am I achieving this? I recognise I’m in a very fortunate position where my partner and I both work fulltime with an above-average household income, we have no dependants or significant debts and relatively low outgoings. This is allowing us to put aside almost as much as a second mortgage payment each month into a hidden ‘overpayments’ pot. Then a couple times a year I’ll use the money in that pot to make an overpayment (unless something significant arises). Circumstances can definitely change and who knows whether I’ll be able to achieve this goal but I’m optimistic. Doing overpayments early in the mortgage term will always have the highest impact on total amount paid, so I’ll be happy even if I can only achieve this for a couple of years.
I have considered alternative saving methods that could potentially earn me more in interest than I save through this method, but there is just something very rewarding and satisfying about making an overpayment and seeing the years of mortgage payments and interest accrued disappear.
EDIT: I’ve created a template
So my questions:
- Anyone else considered mortgage overpayments as part of their saving goals?
- Could Monzo ever offer a mortgage? (related reddit thread, Monzo did dabble in this area back in 2019)
- What features could Monzo add to Trends - a big update to the Monzo experience that could relate to mortgages?
For info, I built my tool in google sheets, but a similar mortgage tool can be found here; Mortgage Calculator UK: Repayment & interest only mortgages - MSE