another question about overpaying 25 April 2009 at 7:51AM in Mortgage-Free Wannabe 8 replies 904 views

susieanne

My morgage is an interest-only morgage instead of going back to a repayment morgage i am going to make overpayments on my interest-only .
My question is sorry if this is a stupid question but when i start to make payments to pay off my capital will my payments for the interest part of the morgage come down ?
I wondered if someone could explain to me how this works if it does work like that .

littlemrtinkle

when you overpay you pay money off the capital. With most lenders you can either reduce the term (shorten the length of your mortgage) for me paying off an extra £50 a month knocks 3 years off the mortgage.

Or you can ask them to reduce your monthly payment and with this you are not altering the term.

Check with your lender as to what they do as standard.

susieanne

littlemrtinkle wrote: »

when you overpay you pay money off the capital. With most lenders you can either reduce the term (shorten the length of your mortgage) for me paying off an extra £50 a month knocks 3 years off the mortgage.

Or you can ask them to reduce your monthly payment and with this you are not altering the term.

Check with your lender as to what they do as standard.

Thanks could i ask are you on an interest-only morgage ?

littlemrtinkle

no i am on a repayment, although some of my friends who are on interest only and because they are self employed they can only afford to overpay on the good months when they have plenty of work.

lr1277

I think the reducing the term only applies to repayment mortgages. Not sure though.

However I do have an interest only mortgage on which I overpay. It is with the nationwide and they allow fee-free overpayments under 500 pounds. (sorry no pound sign on this keyboard). They do say if you pay in more than 500, your monthly payment should reduce the following month.
However overpayments over 500 (within a month) incur a fee of 1.5% of the overpayment.
I paid in 500 last month and my mortgage was not reduced this month. I will query with them. However I can see the overpayments applied to the mortgage account using internet banking.

I have outlined what it is like with Nationwide. You will need to find out the overpayment policy of your mortgage provider.

HTH.

chirpchirp

I have an interest only mortgage with one of the smaller building socs. With it I can make any over payments that I want but you will need to check if this is the case with your mortgage. I can also reduce or add to the term for a small fee - I think £50. However, with an interest only mortgage which allows me to overpay whatever I want I see no point in lowering the term. The benefits of lowering the term only really kick in when you have a percentage that you can overpay by. So if you can overpay whatever you want, then I would stick with the term as it is. By overpaying you will of course still pay it off earlier but by leaving the term longer it gives you more flexibility as to when to cash in your investments to pay the last bit off. Hope that makes sense, if not -ask me.

susieanne

chirpchirp wrote: »

I have an interest only mortgage with one of the smaller building socs. With it I can make any over payments that I want but you will need to check if this is the case with your mortgage. I can also reduce or add to the term for a small fee - I think £50. However, with an interest only mortgage which allows me to overpay whatever I want I see no point in lowering the term. The benefits of lowering the term only really kick in when you have a percentage that you can overpay by. So if you can overpay whatever you want, then I would stick with the term as it is. By overpaying you will of course still pay it off earlier but by leaving the term longer it gives you more flexibility as to when to cash in your investments to pay the last bit off. Hope that makes sense, if not -ask me.

Thanks for your replys but with me i have no investments to cash in or any other payment arrangement in place to pay my capital off .We did have a repayment morgage but i have so much unsecured debt which didnt seem to be reducing because we where living off credit cards (a terrible situation to be in ,the only option was to go interest only to have the extra money to throw at my unsecured debts .My plan soon was to go back to repayment but i was thinking i could stay interest-only but pay what i would be paying if i was repayment plus an say an extra £50-£100 per month on top of that .
I hope this all makes sense ,so if i did do this would my morgage be payed off in 22 years time as planned .

Trying_to_be_good

Susieanne

Sounds a great plan.

1. Check there's no penalty for overpaying.
2. Check whether your mortgage interest is calculated daily, monthly or annually, as this will affect when it's best to make your overpayments (you want the overpayment to be credited to your mortgage account just before they calculate the mortgage, so no problem if it's calculated daily, but if it's monthly or annually, time it for the right week (easier than timing it for a day!)).

dimbo61

In a word yes!
Check with your lender or ready the T & C,s that came with the mortgage offer.
Some lenders have a 10% overpayment limit and others allow up to £499 a month extra.
Dont get hit with any charges because you are reducing the balance so read the paperwork.
Its a debt at the end of the day so If you have cleared your other debt which is more expensive ( higher APR ! ) then overpay the mortgage each month and GOOD LUCK