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The Mortgage Overpayment Wall

Recently I was trawling the rich archives over at the excellent Monevator site when I came across this article about what it feels like to finally be mortgage free.

Now unfortunately we’re not mortgage free yet, but we have been over paying our mortgage1 relentlessly for the last 4 and a bit years. Though I know good progress has been made, the article prompted me to review the progress we’ve made in more detail.

The good news is….

In the four years since we moved we’ve managed to pay off 52% of the outstanding mortgage balance.

Despite this good news, I’ve found that recently I’ve been lacking in motivation to keep the overpaying momentum. I was interested to read that The Accumulator over at Monevator said he hit a wall when he reached the halfway mark in his overpayment journey.

Mortgage OverpaymentsWhen I glance back at my overpayments spreadsheet I can see that the only two months in the last four years we’ve not made an over payment have both been in the last 3 months.

Why? Well we’ve had a particularly expensive time of late. The anniversary of our moving house means that late spring/early summer means a lot of brown envelopes hit the door mat, such as the house insurance and most notably our annual rail season tickets. Poor excuses, bad budgeting, summer slackness, call it what you want my overpayment momentum has dipped.

In order to try and get myself motivated again I decided to look more closely at the achievements to date, how they were made and the effect they’re having on our finances.

What has made it all possible?

Well mainly…

  1. Low interest rates. With two tracker loans secured against our property, the Bank of England have done us a huge favour by keeping interest rates at the record low level of 0.5% over the last four years. It’s enabled us to maximize the amount of capital we can pay off each month.
  2. Persistence. Until the last 3  months we’ve made over payments every month without fail. During this time we’ve incurred some pretty big expenses (the biggest of which being our wedding), though I’ve always ensured we’ve overpaid each month, no matter how small (until recently).
  3. Following the rules. I’ve covered what it takes to over pay a mortgage before. Read the overpayment rules here and implement to the letter.
  4. Not spending unnecessary money. My bicycle is worth more money than our car and we don’t have a bath in our house and exotic foreign holidays are no longer the norm. We could have spent many thousands of pounds righting these ‘wrongs’ (as my wife calls them) however instead we overpay our mortgage and satisfy ourselves with cheap motoring, daily showers and staycations.

Was it Worth It?

Well, the first few overpayments we made were pretty exhilarating. Doing something that I knew was going to save us thousands of pounds in the long run was quite a buzz.

However the novelty of making bank transfers every month and seeing our disposable income get disposed of in such a boring way soon wore off. Pretty soon over payments were just part of my routine and another thing to be tracked and obsessively logged in a spreadsheet. To keep my interest levels up I find I need to sometimes dig out the spread sheet and look at exactly what benefits are being reaped:

  • To date we have saved many tens of thousands (>£50k) of pounds in interest payments. This is money I’ll have in the future that can be invested to generate me future income. This figure will increase over the next 4 years too.
  • By keeping our monthly payments the same, £1,021 of our monthly payment now goes to reducing our outstanding capital. If we’d not made any overpayments only £756 would be reducing capital each month.
  • If we maintain the same rate we’ll be mortgage free in less than 3.5 years time

The three points above are pretty compelling motivation to keep going. It would have been so so easy to not embark on this overpayment journey and enjoy that disposable income a bit more. However, looking back the progress has been nothing short of impressive.

Debt Free Future

If you’ve spent any time reading personal finance sites you’ll be well versed in understanding the the snowball effect of compound interest. Well overpaying your mortgage has the same snowball effect on your debt. The more you overpay, the more impact any future over payments will have, and the easier it gets. As a result our overpayment journey is all downhill from here. It will get easier and easier to pay down the existing capital every month.

Actually…we’re closer than we think

We actually have two loans on our house, one of which we ported over from our previous property as it was on such a good (low)  rate of interest (base rate +0.47%). In fact only 52% of the outstanding balance is on the more expensive loan  (base rate +2.39%).

It’s very likely that once the expensive loan is fully paid down, we’ll cease all overpayments and direct the money towards investments that can generate a far bigger return than the cheap loan is consuming. This means that in reality we’ve only got one quarter of our original balance to pay off now.

Reviewing our progress to date has certainly given me some of my mortgage overpayment mojo back. It’s exciting to think that in less than four years time we could be mortgage free. Already I can see how much income my NISA will produce and in particular how much of our monthly expenditure is already covered by investment returns.

Financial independence under the Money Tree is rapidly nearing reality…


1I’m talking about the mortgage on our residential property here, not our rental properties

{ 13 comments… add one }
  • MrsFinancialFreedom June 26, 2014, 1:23 pm

    Well done on overpaying so much on your mortgage. I agree that it does get addictive and like you, I sometimes look at my spreadsheet to keep myself motivated.

    I did get a bit tired of making overpayments about 18 months ago but just stuck to my plan and kept those overpayments going in. Now hopefully, I’ve got about 15 more months to go and that has really motivated me. When you can say to yourself that you only have 15 more mortgage payments to make, it feels so good!

    • Under The Money Tree June 26, 2014, 1:31 pm

      Mrs FF,
      15 to go, well done! I think it’s easy to forget how slow progress was/is when you first start overpaying.

      I remember calculating after the first couple of over payments I made that I’d saved £100 in future interest payments and being seriously pleased with myself! It funny how your expectations change over time!

  • Marco June 26, 2014, 9:55 pm

    Hi UTMT,

    I have a dilemma currently. I have a BOE + 1.99% life time tracker. Mortgage 200k.

    Selling property due to complete in 2 weeks for 480k and looking to invest the money into buy to let in a much cheaper city (London to Glasgow).

    I’m tempted to buy a very expensive property just so I can keep the cheap mortgage going. However, I will have enough money to buy 1 – 3 properties outright with no mortgage.

    Obviously, there are lots of other factors at play but these mortgage rates are basically free money taking inflation into account and I’m worried about giving up my life time tracker which is portable if I buy within 3 months.

    • Under The Money Tree June 26, 2014, 10:35 pm

      Hi Marco,

      Bear in mind that most mortgage companies won’t let you port that nice rate over onto a buy to let mortgage, only to a residential property.

      I wouldn’t necessarily think of a cheap tracker as ‘free money’. If prices are rising and your debt is working for you then yes, there is an advantage to having the cheap loan. However with all the recent talk about rate rises and end of bubbles, your debt might stop working for you soon (end of capital appreciation through price rises) and you’ll be left with a rising debt as rates increase.

      On the other hand I look at over paying (or paying off) my mortgages as a risk free return. If prices stop rising and you pay off the loan in full you’re effectively giving yourself a BOE+1.99% return on the principle amount.

      As you’ve probably picked up on some of my posts with my property investments I tend to avoid relying on capital appreciation at all.

      Assuming you’re going to buy somewhere else to live I’d focus on buying for your need rather than your capacity to borrow cheaply. I wouldn’t get too hung up on using all of that 200k @ 1.99%. Once you’ve sorted that one out see what’s left in the pot and consider buy to let if feasible.

      Hope the above helps somewhat. Obviously it goes without saying that it’s hard to give a solid opinion without knowing all of the circumstances.

      Good luck with the move whatever you decide and do let us know what happens!

  • Matt DB June 28, 2014, 6:13 am

    I have been in a similar situation but have come to regret (a little) being so aggressive in paying down our own mortgage of base + .28%. I am now at a phase in my life where I am not working for anyone else, and am looking to expand our BTL portfolio. While I appreciate the peace of mind of paying down the mortgage, I look back and think I could do with the capital to invest now. The super mortgage rate is likely a once in a lifetime thing I have paid down quickly rather than used to allow me to fund other ventures that would likely return far more.

    • Under The Money Tree June 28, 2014, 8:54 pm


      As i think you’ve found, it’s a case of the grass is always greener I’m afraid. If you hadn’t paid down the mortgage, where would the capital (all those over payments) be now? If they were invested in income producing equities (ISAs) I suspect you’d be reluctant to withdraw and put into property the way things stand right now. I doubt you’d have just left the cash rotting in a cash/savings account. If you’d spent it then you’d still have the debt now and not much to show for it I suspect.

      That said as you say, base rate +.28% is something neither of us will see again most likely 🙁

      Best to just sit back with a glass of something nice and pat yourself on the back for shifting that debt quickly. If rates start to rise as predicted it’ll look a much better decision 5 years from now.

  • Marco June 28, 2014, 10:27 pm

    Good point about giving yourself a pat on the back.

    When you are good with money and save a large amount it is easy to become obsessed with trying to squeeze maximum returns/efficiency out of your money pile.

    Better to sit back and just enjoy your financial freedom. Instead of stopping and smelling the roses, stop and look at your neighbours hire purchase brand new range rover and be glad you you are not a sucker.

  • theFIREstarter June 30, 2014, 7:13 am

    Amazing figures here on time you are paying it down and the amount of interest payments it will save! This is some fine motivation to over pay. I also like the idea of doing this instead of stuffing money into the stock market (or at least as well as) when you feel it is overvalued, which many people are saying it is right now (in the US especially).

    One question: “It’s very likely that once the cheap loan is fully paid down, we’ll cease all overpayments and direct the money towards investments that can generate a far bigger return than the cheap loan is consuming.”

    Is that a typo? Should the first “cheap loan” actually be “expensive loan”. Otherwise I couldn’t understand why you are paying off the cheapest load first 🙂

    • Under The Money Tree June 30, 2014, 4:41 pm


      Thanks for spotting the typo! Amended the article above!

  • SparkleBee June 30, 2014, 9:15 am

    Glad you are happy with the pay down the mortgage tag.
    I managed to pay off my mortgage on my residential home the other year, it such a relief and the extra cash from the mortgage payments is now being diverted to savings and investments.
    The person at the bank I dealt with to pay the last installment, even said ‘well done’ & ‘congratulations’ and wished me well as she know she was years off being in this position.

    I have a BTL too – only the one. It’s a recent investment its on a LTV of 64%, its a bit out of my comfort zone but if I don’t try I can’t moan that ‘I should have had rentals’. Its an experiment hopefully one that will not burn my hands too much. I see it as a long term investment and its on an fixed-interest only deal. If I am not happy with it in 5 years then I will consider selling and giving it up as a bad idea. Don’t expect to make too much growth on it, as prices are not moving that much as its not a London based property.

    Keep up the good work, I will keep reading your posts with interest as I’m not that financially savvy and could learn a few things.


    • Under The Money Tree June 30, 2014, 4:56 pm


      First of congratulations on paying off your mortgage. Sounds like your BTL is not too leveraged. As i’m sure you’ve gathered from the site I don’t think about the capital value of my BTL’s but prefer to concentrate on their income generation.

      • SparkleBee September 13, 2014, 9:28 am

        It’s a great feeling. I am looking at my rental as a passive income stream. It is earning about 3% net after taking my expenses/tax into account which means that I am earning more from this than the invested money would have earned in a savings account. I’m maxed out in tax-free accounts!
        I may start looking at paying off some of the capital on it with spare cash, only problem is it would increase my tax liability (I am high rate taxpayer). But at retirement, I would drop into the lower tax band and so the net income in my pocket would increase.
        I have also started to track my passive income to see how this compares to my salary. The rental makes up a good proportion of this on a monthly basis and viewing the passive income this way has really started to motivate me to seek the freedom and FI goal.

        • Under The Money Tree September 16, 2014, 10:44 am


          It sounds like you’re in a great position and your journey towards financial independence is gathering momentum. Paying off a mortgage on a rental/buy to let property can be a difficult choice. Ideally it would be paid off with the tax free portion of your pension pot – however I’m planning on being FI well before I’m 55 so I need to keep paying mine down. More tax paid no will be offset by the extra income I’ll get in the years between now and when I’m 55.

          I like tracking my passive income too and comparing it to items of expenditure or future expected (post FI) expenses. It’s a great motivational tool.

          Good luck with your FI journey!

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