Question - what is the benefit of overpaying on a Fixed Rate Mortgage?

sitesafe

Hi

Just wondering how it works if you make permitted overpayments (as in ones that won't incurr an ERC) on a fixed rate remortgage deal of say 5 years? Obviously the monthly payments will stay the same?

Does this mean that at the end of the 5 year deal your new deal will take into account the overpayments you've made when looking at the balance to base the new deal on?

So during the 5 years of someone putting in say £100 extra a month how will that be shown on the annual mortgage statement of a fixed deal?

Or will they be used to reduce the overall term of the mortgage and if so is there any benefit of putting the money in during the 5 year fix rather than put in a lump after the 5 year fix?

Just curious ...thank you

powerwin

I'm no expert, so I might be wrong but ...

The overpayment will go towards repaying the actual amount you owe (the mortgage principal amount) ... so even though you pay a set amount each month (usual monthly + overpayment), you are consistently reducing the mortgage principal, which in turn means slightly less interest to pay and each subsequent payment pays a slightly greater proportion of principal off. At the end of five years, the principal is therefore less than it would have been, and you can remortgage for a smaller principal amount.

Rgds

sitesafe

powerwin wrote: »

I'm no expert, so I might be wrong but ...

The overpayment will go towards repaying the actual amount you owe (the mortgage principal amount) ... so even though you pay a set amount each month (usual monthly + overpayment), you are consistently reducing the mortgage principal, which in turn means slightly less interest to pay and each subsequent payment pays a slightly greater proportion of principal off. At the end of five years, the principal is therefore less than it would have been, and you can remortgage for a smaller principal amount.

Rgds

Thanks powerwin; do you know if that would mean you would also pay off your mortgage early (I tried it on the overpayment calculator and it showed a few years off with some regular overpayments - but the calculator didn't specify it was for a fixed rate mortgage)

B'stard

You may want to look at a topic I started here - https://forums.moneysavingexpert.com/discussion/3191276=

I too was asking about mortgage overpayments, and erc's (early repayment charges)

hcb42

sitesafe wrote: »

Hi

Just wondering how it works if you make permitted overpayments (as in ones that won't incurr an ERC) on a fixed rate remortgage deal of say 5 years? Obviously the monthly payments will stay the same? The amount you are required to pay will be the same, the amount you actually pay wont be - as you are overpaying

Does this mean that at the end of the 5 year deal your new deal will take into account the overpayments you've made when looking at the balance to base the new deal on? Yes, you will have reduced the capital owed by the amount you have overpaid by over the 5yrs you were overpaying, (or whatever time you overpaid by) So you would owe less and base your new mortgage on that amount

So during the 5 years of someone putting in say £100 extra a month how will that be shown on the annual mortgage statement of a fixed deal? It will show because the capital will have reduced. The fixed rate is a fixed "interest" rate. Interest charged will obviously be charged on the reducing balance,

Or will they be used to reduce the overall term of the mortgage and if so is there any benefit of putting the money in during the 5 year fix rather than put in a lump after the 5 year fix?
When you make an overpayment you normally state whether you want to reduce the term (normal for small overpayments) or reduce the monthly payments (more logical if you have a larger windfall e.g. a one off repayment of £30K or whatever...)

If you put it in during the five year term, you will pay less interest. THe interest "amount" isnt fixed, it is the rate, and you are normally allowed to overpay by a certain percentage e.g. 10%

Just curious ...thank you

you're welcome

sitesafe

B'stard wrote: »

You may want to look at a topic I started here - https://forums.moneysavingexpert.com/discussion/3191276=

I too was asking about mortgage overpayments, and erc's (early repayment charges)

Thanks...well, that was definitely paying off your mortgage early..well done

sitesafe

Thanks, very well explained!