Overpayments and interest

Chin

Hi

hoping someone can just clear something up for us re Overpayments.

We were applying for a 30 yr mortgage but lender has said based on affordability we must do a 35 yr option.
Based on the savings each month we plan to overpay, and using the following calculator says by overpaying the savings each month means we shave off 5 years of our mortgage term.

http://www.whatmortgage.co.uk/mortgage-calculator-what-if-i-over-pay-my-mortgage/

can someone clarify please if it really is as simple as that?
does it also take into consideration the interest etc..

we only ideally wanted to take a 30 yr mortgage so the overpayments are a must, but wanted to clarify that if it says a saving of "5 years", then that takes into account all interest too from the longer term

cheers

getmore4less

You only pay the interest on the amount owing at the time it is calculated usualy monthly.

Term makes no difference.

If you overpay you reduce the capital owing so the intesest each month goes down.

handytips

I find the lenders a little ridiculous with these huge terms, a 35 year mortgage is basically and interest only mortgage for the first 10 years or so, as the capital repaid will be paltry, if you can make capital overpayments good on you. Remember when the deal comes to the end. Get the mortgage re-brokered and then look at reducing the term. In my book if you can afford to overpay then you should be able to have a shorter term. However Santander's (just a guess) affordability calculator is very difficult to understand. However if you have a Medium/High credit score you should be able to borrow up to 5 times earnings. Good Luck

Chin

It's YBS (who are notoriously strict I'm lead to believe)
We were within their criteria to get what we wanted on a 30 yr mortgage however because i have been in and out of my overdraft over the past 3 months they are saying they need to factor this in, and to do this they either need to reduce the amount borrowed or extend the term.

it's silly really but if by overpaying the savings we are getting from by them stretching the term means we are back to where we wanted to be in the first place i'll be happy.

what is annoying is that i am now out of the overdraft with a fairly healthy balance yet they are still factoring in the overdraft?

Thrugelmir

Chin wrote: »

I
We were within their criteria to get what we wanted on a 30 yr mortgage however because i have been in and out of my overdraft over the past 3 months they are saying they need to factor this in, and to do this they either need to reduce the amount borrowed or extend the term.

There's more to owning a property than just paying the mortgage every month. So having less of a fixed outgoing may prove very useful.

When looking at affordability the lender may well see what the impact is on your finances if interest rates up to 6% - 7%.

Personally I'm a great believer in making overpayments. However even I would have caveats depending on the individual circumstances. Best to have a measured balanced approach.

getmore4less

Its not an issue if you can overpay without penalty

Longer term can actualy be the better option since the commited payment is lower so you get to choose how much more you want to pay each month.

Commit to a shorter term and you are stuck with the higher payment.

dimbo61

So its simple just overpay and even on a fix you are allowed to overpay by 10% a year with YBS
I have been op for the last 5 years and reduced the term big style

Chin

Is there a min overpayment figure with YBS?
Would you suggest I overpay each month or do it in one lump at the end of the year?
I'm guessing it doesn't really matter?

Thanks for the help

Thrugelmir

Interest is calculated daily and charged monthly. So the sooner its credited to the mortgage account the more you'll save in the longer term.

dimbo61

Simple take 10% of mortgage balance and divide by 12 to give you the max you are allowed to pay each month and set up to pay that amount each month or less if you cant afford 10%.
You get paid monthly so overpay monthly