Mortgage Overpayment - Lump Sum or Monthly?

desk1_2

Hi All

Quick question hopefully for people who've dealt with this before....

Im fortunate to have about £100k on a 2.5% rate, only a few years in. I'm paying about £500/month currently, but want to overpay by an extra £9k a year. There are no ERCs so I can either pay £1250/month, or an extra £9k in one or more lump sums.

Is it better one way or the other? The mortgage rate is similar to savings interest (2.7%), so would it be better to save the money and get the interest, then pay off in a lump, or to increase the monthly payments and reduce the cumulative total+interest on the mortgage? Or, as I think, will it make no difference either way?

dimbo61

The sooner you can overpay the better!
Most people get paid every month so if you have spare money then op straight away
I would ask for your mortgage payment to remain static so you are in effect overpaying a little more each month.
Its nice to see the mortgage balance drop every month and you are building up an overpayment pot.

blueberrypie

desk1 wrote: »

Is it better one way or the other? The mortgage rate is similar to savings interest (2.7%), so would it be better to save the money and get the interest, then pay off in a lump, or to increase the monthly payments and reduce the cumulative total+interest on the mortgage? Or, as I think, will it make no difference either way?

Most mortgages calculate interest daily, so if you are overpaying, sooner is better.

However you should be able to earn more than 2.7% on your savings, and if you can earn more than 2.5% after tax, saving until the mortgage rate is higher than the savings rate is more beneficial.