Savings V's Capital Repayment(Updated 2.12.04)

Angela

Just phoned the abbey to ask a few questions.
Chappy said not alot in savings wheither you make cap repayments or over payments he said six of one and half a dozen of the other.
The thing he did say was if you make overpayments this will reduce the length of your mortgage,not sure if this is a good idea for me as my endowments mature at a certain date so I will not be able to pay the rest back early.
Am I missing something here?

DiggingOut

I doubt that is accurate for an interest only mortgage.

On a repayment mortgage, if you make overpayments and your regular payment is not reduced, you will of course pay off the entire mortgage early, so the term is shortened.

On an interest only mortgage it should only shorten the term if you make sufficient overpayments to pay off the entire mortgage, which is unlikely from what you say.

I would call back and ask for an explanation of what he said. If you are still told it will shorten the term, I would ask how much they shorten it, and how that is determined, and get a full explanation.

If they can't explain, ask to speak to someone who can. I think he was saying what they generally say to someone considering overpayments, without stopping to think about the fact that it is interest only.

Angela

Digging Out yes you are correct I was given duff info.

So my question now is Capital Repayment or Over Payments which is more beneficial.

lisyloo

Financially neither.

If you made overpayment on the same days and to the same amounts as your repayments then the effect would be identical.

The only reason I suggested it is that repayments will be mandatory (if you don't pay then you will go into arrears and get a bad credit rating).

Overpayments are voluntary so it gives you flexibility.

It's impossible for anyone to say whether that flexibility is valuable to you because we don't know about the stability of your job or whether you have another income or insurance for redundancy etc.

Personally I prefer the flexibility but that's because I work in the IT industry which isn't very secure and I've been made redundant with NO notice twice so far.

So in summary, entirely dependent on a number of things that we don't know about

Angela

Sorry I should have said which is more benefical re saving the most interest.

For example are overpayments kept to one side and only taken off the capital at the end of year so hense just sitting around not reducing your capital.

Where as a capital repayment comes off straight away thus reducing your interest paid, as far as I am aware anyway.

Am I correct in my thinking or would it vary between borrowers.

DiggingOut

Some borrowers calculate interest annually, but they would treat overpayments and capital repayments the same.

Others calculate it daily or monthly, but again, I suspect they would treat the two forms of payments in exactly the same way. If you have any doubts, you can ask your lender, of course.

Angela

Thanks for all your help and suggestions.
All sorted now.

Angela

Hi me again with a query on my old thread.

My interest on my mortgage is now 5.25%.

My Abbey isa's interest is 5.1%(i believe unless it has gone up?).

Should I now use my isa money to make a capital repayment on my mortgage?

I believe this is the right action,unless I have missed something?

Many Thanks

Angela

Any comments on the above post?

Robert_Sterling_3

It makes very little difference on way or the other.