How will overpayments affect my mortgage?

Unclefoobar

I have two mortgages on my property. The first is interest only, £65450 backed up by two endowments. The second is repayment with £16198 outstanding.
Both mortgages were Alliance & Leicester, now Santander. Mortgage rates are both BOE + 0.75% so 1.25%.
The interest only mortgage monthly payment is £68.51 per month but I overpay by £140 per month.
The repayment mortgage monthly payment is £171.53 but I overpay by £60 per month.
Both overpayments have been place for approx 12 months only.
Both endowments are due to shortfall, the L+G endowment should have paid out £46500 but latest forecast shows a £12000 shortfall @ 6%. The MGM Advantage endowment should have paid out 19500 but latest forecast shows a £2800 shortfall @ 6%.
Interest only is due to finish 7 years 9 months.
Repayment is due to finish 8 years.

So, how do my overpayments affect my mortgage? Will it simply finish earlier? (I assume this is the case with repayment mortgage) Will I have to continue to pay into the interest only mortgage to clear the endowment shortfall?

Any advice is gratefully accepted. I realise this is a somewhat naive question but my theory is, although I may not understand the situation ANY overpayment is a good thing. (I did consider putting the £200 a month in to savings but I’d rather clear the mortgages):beer:

kingstreet

If you overpay a repayment mortgage, the overpayment can either reduce the remaining term, or reduce the monthly payment. It's your choice which one. You need to ask your lender.

Making overpayments on interest-only is more predictable. It simply reduces the monthly payment.

Thrugelmir

At your current mortgage interest rate. You may wish to consider saving the overpayments into an ISA. Where you will earn a far better rate of interest.

InkZ

http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

If your savings rate is higher than your mortgage rate then you should be saving, not overpaying.

TheBlueVoice

kingstreet wrote: »

If you overpay a repayment mortgage, the overpayment can either reduce the remaining term, or reduce the monthly payment. It's your choice which one. You need to ask your lender.

Making overpayments on interest-only is more predictable. It simply reduces the monthly payment.

I'm a bit confused - if I overpay my mortgage by 150/month so I'm paying 600 instead of 450, how does that lower my payments? Surely overpaying only reduces the remaining term (assuming the over payment is kept up) ?

kingstreet

TheBlueVoice wrote: »

I'm a bit confused - if I overpay my mortgage by 150/month so I'm paying 600 instead of 450, how does that lower my payments? Surely overpaying only reduces the remaining term (assuming the over payment is kept up) ?

You have two variables which can change. The term is one, the monthly payment is the other.

In the latter, you make an overpayment which immediately reduces the capital balance. The interest is therefore lower for the following month and you have the same remaining time in which to repay less money. Ergo, the contractual payment reduces for the future. If you carry on making overpayments on a regular basis, both will happen.