Overpaying my mortgage. Confused

DaveAGC

I find this confusing

The objective is to reduce the balance of my capital over the next couple of years to help with getting a good deposit when i move out.

In october this year, i had a letter from my mortgagees. They said that as my fixed term had ended, my monthly payments were to reduce from around £340pm to £98pm. Fantastic. I contacted them and asked if i could maintain payments of £340. They agreed. They wrote to me and said that if, during the next 11 months, there is a changeto the interest rates or my deal comes to an end, they will recalculate my monthly payment. This, they said, will mean that I will replay the outstanding balance over the remaining term, this being in line with my agreement. Any overpayment that are credited to my account will reduce my capital balance rather than reducing my term. Okay. This apparently means that interest will be in line with my new capital balance.

My rate is currently 1.6 variable. It was an interest only account. I borrowed 68,500.

On 5/10/09, the balance was £68,211.96 but at the end of November it was £68,218.49.

Is this right, or am I expecting too much too soon? Perhaps there's a better way.

Gorgeous_George

I wouldn't be overpaying a mortgage of 1.6%. Instead, I'd be opening cash-ISAs at 3%+.

GG

moneysavermum_2

Gorgeous_George wrote: »

I wouldn't be overpaying a mortgage of 1.6%. Instead, I'd be opening cash-ISAs at 3%+.

GG

Why gorgeous geoger, do you think it would save you loads....also arent you only allowed to put 3600 into a cash isa a :Tyear.

Firewallrob

QUOTE "On 5/10/09, the balance was £68,211.96 but at the end of November it was £68,218.49"

Never compare balances on different dates. Lenders will often increase your balance on a specific day each month (Often 1st, but not always), as interest is added, plus lower your balance after they receive your monthly payment each month.

Not quite undertsanding your other points OP - if you overpay, then the term has to decrease. The only way it doesn't is if you overpay for (say) 11mths for example, then you pay the minimum payments once again. At the end of the overpayment period (11 months in my example), your balance is lower than it would have been (had you not overpaid) - SO.......your new minimum payments will be lower than they would have been.

If you overpay for the rest of the mortgage, then you WILL pay less interest on your mortgage, and your mortgage WILL finish quicker.

As to whether overpaying is the best for you - I don't know, but I personally would

Firewallrob

For anyone wanting to overpay, but unable to do so because of having early repayment charges. You can often get around this by just shortening the term of the mortgage - causing you to (in effect) overpay over a shorter term with a small (£35-£50 admin fee).

Make sure that you have a daily or monthly interest calculated mortgage and not one of the older annual types.

Believe it or not, some lenders bring new business in on daily/monthly interest.......but existing customers are left on annual

Gorgeous_George

nje24 wrote: »

Why gorgeous geoger, do you think it would save you loads....also arent you only allowed to put 3600 into a cash isa a :Tyear.

The interest rate is the key and yes, you are limited to £3,600 per year in a cash ISA (rising to £5,100 for over 50's - ageism - and for all from next financial year.

Just as it is usually always better to pay off the highest interest debt first, it is usually always better to save at the highest interest rate. Look at your overpayments as a savings method.

A standard rate taxpayer would do better by saving in a regular saver(s) (earning 5% gross, 4% net) than overpaying a low rate mortgage.

GG