When is the Best Time to Overpay a Mortgage

hobbesandco

I posted a thread back in January about remortgaging. Thanks for the response. My next question is is there a right time to overpay the mortgage? I'm asking because I took out my first mortgage in June of last year and I am thinking of remortgaging already. Trouble is I don't know if I should overpay on my current mortgage or wait until I remortgage with another lender. Any ideas?

YorkshireBoy

hobbesandco wrote:

I posted a thread back in January about remortgaging. Thanks for the response. My next question is is there a right time to overpay the mortgage? I'm asking because I took out my first mortgage in June of last year and I am thinking of remortgaging already. Trouble is I don't know if I should overpay on my current mortgage or wait until I remortgage with another lender. Any ideas?

I stand to be corrected here but I believe it all depends on whether interest is calculated annually or daily, and whether your lender will allow overpayments.

With our (YBS) interest only tracker mortgage, interest is calculated daily and we've set up a "static payment" to overpay each month.

In years gone by (and certainly with one of our old YBS mortgages) many lenders calculated interest and added it yearly. I believe that there was then no benefit to over-paying throughout the year. It was better to put the money in a savings account and pay it off the mortgage just before the year-end (usually December 31st).

HTH
YB

cloud_dog

Another thing to look into is if your lender (future lender) has a minimum payment before the actually take the over-payment off the outstanding capital. I think (although check) that if a lender calculates interest daily they are unlikely to have a minimum payment requirement.

cloud_dog

Walletwatch

To add to YB's reply, the following factors are what come to mind on your query:

1. Interest calculation basis for your current loan (as mentioned by YB)
2. Prepayment charges levied by current lender
3. Prepayment charges levied by future lender (not relevant if you take the loan with the next lender for the reduced amount)
4. Amount that you propose to prepay (the risk is prepaying too much, thereby not getting a competitive enough rate with your future lender, due to the lower loan amount - generally less than £20k - 25k)

Promise to add to the above list as and when I do think of something - apologies if the above is not exactly contributing to resolving your dilemma.

hobbesandco

Thanks for the replies. I'm currently with Co-op. I have a flexible mortgage which allows me to overpay (I'm not sure what the max amount is but I wouldn't overpay near that amount anyways). Interest is calculated daily.