Capital repayment/overpayment

wildhog

Hi,
Having recently being made redundant I have a lump sum I want to put to good use.
Do i make a Capital repayment to reduce my monthly payments or an Overpayment to reduce the term of my mortgage:question::undecided

maninthestreet

wildhog wrote: »

Hi,
Having recently being made redundant I have a lump sum I want to put to good use.
Do i make a Capital repayment to reduce my monthly payments or an Overpayment to reduce the term of my mortgage:question::undecided

There isn't enough information for anyone here to know the answer to your question.

getmore4less

Whats the income situation?

That will determine what you do.

InMyDreams

Capital payment and overpayment is the same thing. Whatever you overpay will come off the capital. Once done you will have a lower mortgage balance and will end up paying less overall than you would have done.

Whether you chose to reduce the monthly payment or reduce the term as a result depends on your circumstances.

Reducing the term means you will save even more overall, but you won't see any difference right now. You will also be committed to paying the higher repayment and it may be hard or impossible to extend the term at a later date. This is good if you think you may otherwise be tempted to spend the difference on other unnecessary things but bad if you find you need that money for necessary stuff due to insecure other income, expanding family... That's why other posters have asked for more information. (Of course the definition of what is 'necessary' is also open for debate.) The fact that you have just been made redundant implies that you don't have job security.

Reducing the monthly payment gives you more flexibility to manage your finances if you are so inclined. If you have a mortgage that you can overpay regularly, you can just make overpayments every month from now on to bring the repayment in line to what it was. This will have the same effect as reducing the term but you are not committed to to extra payment. If your mortgage rate is very low you maybe do better putting the extra into savings instead (if you can trust yourself not to spend it).

So as well as knowing your income situation, how disciplined you are with your spending and organising your financial affairs is also relevant. How old are you? (ie how long do you have before you have to pay off your mortgage). How long do you have left to pay at the moment? How much is there left to pay compared to your income and the value of the property? (That will effect how easy it will be to change or go back on any decision you make today.)

wildhog

InMyDreams wrote: »

Capital payment and overpayment is the same thing. Whatever you overpay will come off the capital. Once done you will have a lower mortgage balance and will end up paying less overall than you would have done.

Whether you chose to reduce the monthly payment or reduce the term as a result depends on your circumstances.

Reducing the term means you will save even more overall, but you won't see any difference right now. You will also be committed to paying the higher repayment and it may be hard or impossible to extend the term at a later date. This is good if you think you may otherwise be tempted to spend the difference on other unnecessary things but bad if you find you need that money for necessary stuff due to insecure other income, expanding family... That's why other posters have asked for more information. (Of course the definition of what is 'necessary' is also open for debate.) The fact that you have just been made redundant implies that you don't have job security.

Reducing the monthly payment gives you more flexibility to manage your finances if you are so inclined. If you have a mortgage that you can overpay regularly, you can just make overpayments every month from now on to bring the repayment in line to what it was. This will have the same effect as reducing the term but you are not committed to to extra payment. If your mortgage rate is very low you maybe do better putting the extra into savings instead (if you can trust yourself not to spend it).

So as well as knowing your income situation, how disciplined you are with your spending and organising your financial affairs is also relevant. How old are you? (ie how long do you have before you have to pay off your mortgage). How long do you have left to pay at the moment? How much is there left to pay compared to your income and the value of the property? (That will effect how easy it will be to change or go back on any decision you make today.)

Hi,
Thanks for that
I was told by Mortgage (BBBS) provider that a Capital repayment reduced the term and an overpayment reduced the monthly premium? Interest rate on mortgage is next to nothing and at the moment income is nil.
I had planned on keeping some funds on one side to live on then it was what to do with the other.
I would normally save but thats not a good idea with the rates as they are eh?
Regards