capital payments

kandyfloss

I have a question to ask,and as a forum newbie I am a bit nervous.
Anyway here goes.We have a small mortgage of £14792.94 with 9 years and 10 months left on a repayment mortgage.What I would like to know,are we better off paying off chunks of our mortgage by "Capital Payments" as rather than doing it by overpayments each month.I am not even sure if we are able to overpay this way anyway.
My sister said that to get rid of a motgage quicker,it is better to make the "Capital Payments" if at all possible.We have got some savings,but we are not sure whether to use some of the money to pay off the mortgage,or keep some of it back in case of an emergency.
If we can pay some of it off this way,is there a right time of the year to do it.?
We also have 4 years left on a car loan,so we don't know if we can pay any of that off earlier.

Any help would be most appreciated

Thankyou

Joe_Bloggs

@Kandyfloss. Welcome to the forum.

There is no one right answer. The problem lies in what a lender allows you to do. It will be written down somewhere. Perhaps give them a call to find out what you can do without having to pay a penalty for doing so.

In my opinion monthly overpayments are better if you don't have a significant amount of capital in the first place. My lender allows monthly payments up to £500 a month. The effect of these is instant as interest is calculated daily. I will get fined 4% of the total payment if I try and pay more each month.

Other lenders have other policies, some are to make less administration for them. A £500 minimum payment for example or any amount as long as it is monthly and with the normal payment.
Another popular method is 10% of capital once a year. This money has to be saved somewhere and you will be paying tax on the interest as it builds up during the year. A high interest regular saver may be the best option to build up a significant annual capital repayment.

Make sure that any repayment has the desired effect. You probably want it to reduce interest charged on the outstanding capital immediately and shorten the term of the mortgage. The lender could simply reduce your monthly mortgage payment keeping the term the same unless instructed differently. Communicate with your lender what the money is for.

You never mentioned the interest rates of the car loan and the mortgage.
It might be worthwhile paying off the debt with highest interest rate first.
Check for early redemption penalties especially with a car loan eg (Rule of 78.).

J_B.

Some lenders, who charge yearly interest, will ignore an overpayment until the one day in the year when interest payments are calculated.

atlantikman

Hello - If I was you - I would bank the £10K in a high interest account, and use the money to pay your mortgage. Another stint would be to to have a look into converting it into a loan (as it is such a small mortgage); for instance Lombard Direct could loan you £15K over 84 months (7 years) or less - meaning you can pay it off quicker, and have a fixed rate of interest for the whole period! I am assuming you will not have any penalty payments on your mortgage for paying it off early. As I say, this is just my opinion and no more - I am not a IFA.

atlantikman

Hello again - sorry about the £10K info - was getting two threads mixed up - silly me!!!