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Beginner December 2007

Overpaying on mortgages

Julia., 3 April, 2008 at 14:22 Posted on Off Topic Posts 0 6

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If you have a repayment mortgage of £45000, you were allowed to pay up to £500 extra a month without penalty, how would this affect the mortgage? Does the £500 extra a month go towards decreasing the capital, or is most of the money going to be paying the interest, with a little of it knocking some off the capital?

I've been thinking about reducing our mortgage, but not sure what would be the best way to do it. Either to overpay some months, or to save the money, and change the mortgage at the end of the 3 years, but reduce it by the amount we've been able to save.

Does all that make sense?!

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6 replies

Latest activity by *CJ*, 3 April, 2008 at 15:10

Petal · 3 April, 2008 at 14:28
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Yes, makes sense to me. I would have thought that you would be paying off the loan quicker therefore reducing the overall interest? Personally I was going to wait until the end of our 2 years and then pay off a big chunk and reduce the mortgage and then set up a new one. Think this may be the better way but others may tell you otherwise.
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Beginner December 2007
Flowery the Grouch · 3 April, 2008 at 14:33
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With our mortage we can set it upin two ways. We can overpay by up to 500 pounds, and either reduce the term, keeping monthly payments the same, or keep the term the same and recalculate the total amount owing, and so reduce the monthly payments.
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Petal · 3 April, 2008 at 14:44
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Have you ever considered one of those Virgin One account thingeys where you can run all your accounts simultaneously thus reducing the term of payment. I was thinking of doing this for a couple of years time, that way you can pay off chunks all the time (because your savings will be tagged alongside the mortgage)
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Beginner December 2007
Julia. · 3 April, 2008 at 14:44
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I think I would have set it up as keeping the term the same. Which is 30 years at the moment I think.
Oh I don't know, I'm still confused! The mortgage will be due for renewal in 2 years time, so I really need to work out whether it's best to overpay regularly, or whether to save the money, and use it to reduce the mortgage when re-mortgaging...

Thank you for replying though, food for thought. ?
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Beginner December 2007
Julia. · 3 April, 2008 at 14:48
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The trouble is, we have two mortgages. One is for £45K and is a repayment for 3 years, needs renewing in 2 years. The other is £102K, an interest only one for 5 years, and needs renewing in 4 years. The interest only one was because of our situation at the time, but things have changed drastically in the last year, and we'll be able to get rid of this at the end of the term.

Maybe I should be considering paying chunks off the IO mortgage? It's a fixed rate, but surely if the capital is less, then the monthly payment would have to go down, even though it's fixed?

I am getting the feeling I should speak to an IFA! ?
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Beginner May 2007
Kegsey · 3 April, 2008 at 15:04
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I think it depends on when the interest is calculated which might be in your details or you might need to contact your mortgage lender. If the interest is calculated monthly/daily, then pay chunks off regularly. If its annual, then save up and overpay just before its calculated.
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Beginner September 2011
*CJ* · 3 April, 2008 at 15:10
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You could always ring the lender on the interest only one and ask them to change it over to repayment? Obviously then you'd be tied into making the 'extra' payments but would be reducing the loan.

Do you have the mortgage offer from when you took it out? It will say on there how they do it and would think it is most likely that it is reducing the capital and therefore the interest amount decreases
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