Is it cost efficient to overpay each MONTH?

dwigg

Overpaying will, of course, save you from ultimately paying lots of interest.

But if you overpay, say, £100pm, does this overpay the capital plus interest?
Would it be better to save that £100pm and pay off £1200 capital only, at the end of the year?

tomstickland

Every overpayment pays off a bit more capital, so monthly overpayment is fine.
It would only be worth saving it up if the savings rate exceeds the mortgage rate.

Trying_to_be_good

So long as the mortgage interest is calculated daily/monthly, it's worth paying monthly (assuming mortgage rate>net savings rate).

If the mortgage interest is calculated annually, it's worth saving up and paying it each year just before the next interest calculation.

BOBS

http://new.egg.com/visitor/0,2388,3_54988--View_1028,00.html

have you used this mortgage calculator ..... I couldnt believe the difference in terms of years and interest making overpayments made.
Hope this helps.

dwigg

Let's run an example using Bobs url? (keep figures simple).
Also used http://www.bretwhissel.net/cgi-bin/amortize

eg.
100k repayment mortgage @ 5% over 20yrs
= £660pm. Total repaid = £158k. Paid up at end of year 20.

With £100pm overpayment
= £760pm. Total repaid = £145k. Paid up at end of year 16.

with no overpayment but £1200 capital paid off at end of each year
= £660pm. Total repaid = £145k. Paid up at end of year 16.

So I derive from this that an overpayment each month pays ONLY capital, and no interest.

dimbo61

Sorry but you have to be wrong
Most lenders charge interest on a daily basis so by paying each month your mortgage balance will go down by the normal mortgage payment minus the interest plus the £100 overpayment so you pay less interst the next month.
As most savings rates will not equal your mortgage interest rate after tax ! its better to pay each month and as most people get paid monthly is also simpler.

dwigg

Hi Dimbo, I think I saved an edit as you replied.

I was trying to understand if a monthly overpayment went towards interest and capital, or capital only.
I think from my calcs that it's capital only.

BOBS

but other companies might calculate differently from the mortgage calculator that I used ....... I only put it in for rough reference .... I would think by speaking to someone from your mortgage company you would get proper figures as to where monthly overpayment goes.

Floxxie

I don't care...as long as the mortgage is coming down, they can take it from where they want!

Floxxie

phizzimum

(sticks head up above parapet cautiously...)

but surely the less you owe as capital the less your interest payment will be?

(quickly ducks back down)

dimbo61

The poster needs to contact his lender and ask
DO YOU CALCULATE INTEREST DAILY ON MY MORTGAGE
If the answer is yes then overpaying each month is best.