mortgage overpayments

sibod2002

hello

i am currently in the early stages of a 2 year tracker mortgage that is costing me £475 a month.The overall mortgage is for 35 years.The deal allows me to make regular overpayments.

Currently i can afford to pay maybe an extra £100 a month but i am wondering if this sum would come off the actual mortgage amount or would it be simply paying of the interest on the loan?

Any advice would be helpful

Thanks

powerwin

I'm no expert, but here are my thoughts ...

On a repayment tracker mortgage (as opposed to interest only tracker mortgage), there are two destinations for your repayments:

The actual loan (amounts paid according to schedule)
The interest repayments (variable according to current tracker rate)

Normally each repayment you make goes towards both.

I would think that any over payments will go towards paying off the loan itself.

If you had an interest-only tracker mortgage, over payments would not be possible, because you are only ever paying interest, never repaying any of the loan.

Rgds

sibod2002

thanks

i have just used the ovepayments calculator on here (a rough guide i know) and it has come up that if i over pay an extra £100 a month more i will save 45k in interest and take 14 years less to pay the mortgage off.

i am going to call the bank tomorow to discuss setting this up

dimbo61

On a 35 year term you will save £2 for every £1 you can overpay now so set up that overpayment and see how you go for 6 months then increase it to £150/200 each month

staffie1

powerwin wrote: »

If you had an interest-only tracker mortgage, over payments would not be possible, because you are only ever paying interest, never repaying any of the loan.

I'm not sure that's correct. My understanding is that on an interest only mortgage, the monthly repayments you are required to pay is interest on the capital balance outstanding on the date each month your repayment is calculated.

If you make an overpayment, you immediately reduce the capital balance by the amount you overpay, and (assuming interest is calculated daily) your next month's required interest payment will be reduced. So if you overpay above the required monthly repayment, you will eat into the capital debt and will be charged interest on the reduced capital balance outstanding next month.

ChopperST

staffie1 wrote: »

I'm not sure that's correct. My understanding is that on an interest only mortgage, the monthly repayments you are required to pay is interest on the capital balance outstanding on the date each month your repayment is calculated.

If you make an overpayment, you immediately reduce the capital balance by the amount you overpay, and (assuming interest is calculated daily) your next month's required interest payment will be reduced. So if you overpay above the required monthly repayment, you will eat into the capital debt and will be charged interest on the reduced capital balance outstanding next month.

That's exactly how I use my mortgage now since savings rates dropped below my mortgage rate...