overpayments

simran_2

I wanted to ask a question about overpayments. If say i overpay, then will whole amount reduce my capital or some of my overpayment will be counted as interest. Say on 158k loan, if i ovepay 3000 in one year, will it reduce the amount to 155k?

minimike2

Well your monthly payments cover your interest element that is due - interset on mortgages is not front loaded, so any over payment should directly reduce the capital.

HOWEVER - Beware - Make sure your lender allows over payments. If they dont, they will sit on account until you close the mortgage, at which point they will be deducted from the balance, but you would have gained no benefit from making the overpayment.

Nonshy

different companies work in different ways with regards to overpayments... if you were for say with northern rock on a flexible product and overpaid £3000 then you balance would be reduced immediately, interest is charged on daily basis so would receive a credit to mortgage balance for the interest in that month and would also have facility to borrow this back at future date. ring your lender and they will explain the specific circumstances.