Calculating mortgage overpayment - reducing monthly payment

cautiousjames

Hi there,

Just signed on for a 30 yr mortgage and have a 10 yr fixed repayment with Yorkshire at the moment.

My wife and I plan to start a family in the next few years and of course she will be on maternity leave and then part time. The mortgage though is affordable on just my salary.

In the couple of years before we try for a family, I'd ideally like to overpay so I can reduce the monthly payment so that there is a bit more breathing room on a reduced income when my wife is not working / part-time.

Every calculator I can find on overpayments talks about lowering the term - which will we do once my wife is back to fulltime work after kids (ie 10 years time).

I am confused as to how I calculate what my monthly overpayment would be.

My understanding is that to reduce monthly payment instead of term length, you pay off only the interest and not the capital.

Say for example I had a 100k mortgage for 25 years at 5%, the interest due on that is 75k.

The first interest payment would be £416 and the capital 167. Next month it is listed as £415 and 168. (according to that uber mortgage calculator I found on the web).

If I then say overpaid £200 and put it towards all of the interest, does it mean that only £215 in interest is due the next month - or, do they take the overpayment amount and split the cost across each month so the term is fixed.

That way, 300 months, so 66p off the monthly payment?

My understanding is it would be the latter not the former but maybe someone can enlighten me.

Thanks

beecher2

Overpayments always come off the capital - you have the option of cutting the term or cutting your payments. How much are you intending to overpay by - you might only be allowed to overpay by 10%. You might be better saving up so as you have the breathing room you need.

Thrugelmir

cautiousjames wrote: »

If I then say overpaid £200 and put it towards all of the interest, does it mean that only £215 in interest is due the next month - or, do they take the overpayment amount and split the cost across each month so the term is fixed.

That way, 300 months, so 66p off the monthly payment?

In simple terms yes. However mortgage interest is calculated daily and charged monthly. So your 66p also saves interest the following month and so on and so on. Providing your maintain your repayments at the initial amount.