Will one off payments reduce monthly payments?

Kuldiin

I have a part mortage part loan with Nram for the last 4 1/2 years and was looking to start making overpayments and was wondering on a few things. The mortage is currently £74,500 out of £76,000 borrowed on a £75,500 property.

Would it be better to make a single payment of £1200 a year or to alter my payments to go from £450pm to £550pm (if this is allowed)? Ideally we are looking to build equity at the same time as paying back faster. Would making individual overpayments of £1200 a year lead to a recalculation of payments in the same way requesting a payment holiday leads to increasing monthly payments?

Unsure if asking to increase my payments per month or single large payments would be the best step to take to building equity.

Thank you for any help.

Naf

This would depend entirely on your deal...
Some have a maximum you can overpay otherwise you get charged for it (Saw a customer today who had been charged a £100 'early repayment fee' for paying more than his agreed 10% per year; I can only assume the reduction in his interest outweighed this). Sometimes the overpayment might go directly to the capital, but not change your monthly payments, just reduce the term; some might change the payments, some might give you the option...
Dedpends entirely on the deal you signed up for.

Joe_Bloggs

@Kuldin
As Naf said regarding checking your deal. Also contact NRAM as to how flexible they are with regards to overpayments and early repayment charges. I suspect they welcome every penny.

If interest is charged daily then make the overpayment as regular as permissible. On making an overpayment the lender has a choice to keep the regular payments the same (reduce term) or reduce the regular payments. This choice is often lost if there is no where to keep the borrowers stated preference.

Read Martin's view first.
J_B.

DVardysShadow

Kuldiin wrote: »

... Unsure if asking to increase my payments per month or single large payments would be the best step to take to building equity.

If you overpay, the lender will do one of 3 things

• reduce the term of the loan, keeping the payments the same
• reduce the payments on the loan, keeping the term the same
• treat the overpayment as early payment of the next payment

In the 1st case, your payments remain the same and your reduced loan puts the loan clock forward to the year in which the loan would naturally be reduced to the level it is now at.

In the 2nd case, the lender begins to slowly throw your money back at you and you have to keep on top of it to ensure you are overpaying as much as you intend.

In the 3rd case, they simply reduce the next payment they take, so you are no further forward. You need to discuss with the lender what they will do and make your preferences clear.

Kuldiin

Thank you all for the advice it's been very helpful