Is it cost efficient to overpay each MONTH?

Jasper27_2

I've found that just being in the habit of overpaying each month you really don't notice the extra money going out. I increase the direct debit and it just disappears at the beginning of the month so I forget I ever had it. If I ever find myself with a bit of unexpected extra cash I can always make a lump sum payment too. I also have my emergency/rainy day savings offset against my mortgage and even though I can only afford modest overpayments in the last 8 years I've wiped almost 11 years off my mortgage. I know some people on here are aiming for being mortgage free in 5 years or so but even if I lived in the cold and dark and ate gruel I couldn't do that! I like to be able to eat out and have holidays too but any amount you can repay each month has a big effect on the amount you'll pay back in the long term.

nrsql

Depends on what's going to happen to inflation.
At the moment it's probably a good idea but if inflation increases dramatically it's probably better to spend the money on other things. It's a choice you have to make.

As to the timing - if you're just concerned about the amount of interest (or outstanding amount) rather than the value then it's better to pay as early as possible.
In your example the choice could be between paying £100 a month or saving it until you have enough to pay off the full mortgage (why just pick yearly) - again this will depend on inflation (or probably your earnings) and the mortgage interest rate.
Could be that a £200k mortgage now would only be worth £20k at the end of the term so maybe you could use the money for something else and hope that you can pay it off easily later.

getmore4less

One thing to consider is if your total surplus cash once the mortgage is paid off exceeds the ISA allowance(and you plan to save that).

If it does it can be worth diverting money into the ISA and having the mortgage a bit longer.

The tax savings are for life the interest saving on the mortgage are for the life of the mortgage.

dwigg

dimbo61 wrote: »

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.

But even if it is calculated daily, if my monthly overpayment goes towards the INTEREST, then I'd be better off NOT overpaying monthly.

So the original question was, does a monthly overpayment pay off capital only.
Those who are overpaying monthly, do you know what you are paying off - interest or capital?

catriona69

dwigg wrote: »

But even if it is calculated daily, if my monthly overpayment goes towards the INTEREST, then I'd be better off NOT overpaying monthly.

So the original question was, does a monthly overpayment pay off capital only.
Those who are overpaying monthly, do you know what you are paying off - interest or capital?

You automatically pay your monthly interest in your normal monthly mortgage payments. Any overpayment pays off the capital. Therefore, if you are paying a higher interest rate on your mortgage than you are getting on your savings, you should definitely overpay.

Robert_Sterling_3

Overpay? Yes Yes Yes.

noodles42

Hey Dwigg

Ah I know where you are coming from as I agonised over the same point as I resent the amount of interest we pay on our mortgage - yes I know it is a fact of life but when I see that the interest charge for a year could buy a car it is a bitter pill to swallow.

If it helps any - our overpayments go completely towards the capital. Our standard monthly payment includes a small amount off our capital and a whopping great chunk of interest (I did say I was bitter - sorry). With each overpayment the capital goes down marginally and so the interest charged will be less over time.

Does that make sense?