Confused by overpayments

geordiepaul2001

Hi all,

I am coming towards the end of my first year of a five year fixed rate mortgage.
I always said I would make overpayments but that hasn't happened yet.
I have decided to pull my finger out and increase my direct debit so that I am in a stronger position to get a competitive mortgage at the end of my fixed term.

My question is, is it really worth it?
My parents have told me that in the first few years its only interest your really paying off and that I will not really be that much better off.
My understanding was that if my mortgage says I pay £1.53 for every £1 I borrow, it would be better to overpay than use a lump sum as deposit when remortgaging.

I think I may sell up and buy a tent!

rsykes2000

If you overpay, you reduce the amount owing, so the interest paid will slightly decrease, also as the amount owing is less then the term remaining will shorten. Well worth doing if you can afford it.

inca_2

It is true that mortgage payments consist of a higher level of interest at the start of the mortgage than later but this is all the more reason to overpay to make an impact on reducing your capital. If you are making separate overpayments this should all be coming off your capital as the interest has already been paid in your normal monthly payment. If you're hardly paying any capital off at the moment then a sure fire way of improving on this is to make a bigger payment to come off the capital. Also, as already stated you will be paying interest on a lower balance each time you reduce your capital, so the interest you will be paying will be gradually decreasing. Depending on how much you overpay by it will be a gradual process but the longer you do and the more you have overpaid the more you will see the benefit of this.

getmore4less

geordiepaul2001 wrote: »

My parents have told me that in the first few years its only interest your really paying off and that I will not really be that much better off

Overpayments are all capital explain that to them.