Are Mortgage overpayments paying of Capital or just Interest?

dellboy102

Hi

I hope someone can help me as I need to make a decision by tomorrow morning and I'm slightly confused, also a first time buyer so have never done this before.

I've been offered a Mortgage (repayment mortgage, tracker of 3.5%) with Natwest, its a 15 year deal but my plan is to finish it in roughly 10 years by adding additional payments of £500 a month, I cannot get a 10 year mortgage but can probably get a 13 year one.

I've been looking at the payment schedule which is:


As you can see the “Interest Paid” starts out very high (£4515) and goes down as the mortgage progresses, if I make overpayments of say £500 per month will that amount make much of a difference to the capital or will most of it go towards paying off the interest, my thought is if it doesn’t pay off much of the capital then when I change mortgage I will be losing out.

I hope the above makes sense and would really appreciate some advice, dont want to make the wrong decision as its the biggest financial decision!

Dan_1976

The overpayments are overpayments and should come off of the capital. Your normal payment has been calculated to ensure the mortgage is cleared by the end of the term chosen so by making the over payment you pay less interest and reduce the term.

Remember to ensure you maintain the same minimum payment or your term will not reduce.

dellboy102

Thanks for the reply, would you say I would be better off going for a 12/13 year mortgage and making less overpayments

My thinking with the 15 year one is if something happens to my job then I can still meet the £1000 payment whereas £1500 could be a bit of a struggle however if i'm worse off compared to say a 12 year one then I may have to reconsider

happybroker

if you you can be disciplined enough to make overpayments then the longer term will give you the flexibility you seem to feel you need....providing the mortgage gets paid off as quickly as possible it's swings and roundabouts to a degree.

Boozer

First thing i would ask is if you have looked around for mortgages, HSBC have a tracker at 1.99% over base, on a 135K mortgage that would cost you 166 pound a month less, which you could then add to your 500.

I do not know your LTV or anything, but just thought i would ask.

Fairdo_2

happybroker wrote: »

if you you can be disciplined enough to make overpayments then the longer term will give you the flexibility you seem to feel you need....providing the mortgage gets paid off as quickly as possible it's swings and roundabouts to a degree.

Agree completely with happybroker on this. It is Capital Repayment on anything over and above the contractual payment, but there is no harm in starting longer term for now, so that you have leeway if times got harder, as the minimum payment is lower.

If you go longer term, then still apply the higher gross payment so more comes off, but also be aware of any overpayment limits in the product itself. In other words, make sure you don't make so many overpayments that you breach a contractual limit and start paying penalties for any additional overpayments.

Just needs the discipline to keep it up!

Good luck

dellboy102

Thanks guys for all the replies, I feel better now!

The house is 165k, 33k Deposit, so mortgage of 132k, I'll be happy once its all sorted, I may be worrying over nothing but i've heard sellers pulling out leaving you out of pocket for your valuation fee.

I can make overpayments of 13k a year so no problems with that

dellboy102

Actually this raises a good point, this may be a silly question but if I did sign the paperwork etc for the mortgage and the seller backs out at the last minute, I know I will lose out on the fees but am I tied in to the mortgage in any way?

Fairdo_2

No. It is an offer of mortgage and not committed to until you have legally Exchanged!

There is a penalty on both sides if anyone pulls out between Exchange and Completion, so it doesn't tend to happen then

Yes you could lose fees already paid, but that is the problem with the wonderful English & Welsh system.

Hope this helps and don't worry so!:A

Dan_1976

As above, go for longer and over pay giving you control.