When is it best to overpay?

kitjos

Hope someone can point me in the right direction as im wondering when the best time would be to put down a lump sum on my mortgage.

Our mortgage is with lloyds and our balance is £139,500.
Our fixed term runs out September '12 so then we will go on another rate but as of now we are at approx 5.70% and paying £780pm, about £100 of that goes to the capital and the rest on interest.

Once September gets here, our rate goes down to 3.99% and we will be paying £628pm (cannot wait for that!) :T

My question: We have £14000 (10%) to take off the mortgage, but should we wait till were on our new rate to do so, so were not paying the bankers in interest at its highest (now till Sept)... instead of shaving it off our capital (less interest from Sept)?

Am i making sense?

CLAPTON

assuming you are allowed to make 10% lump sum payments then make it asap as it will reduce the capital and so reduce interest which is calculated on a daily basis

WestonDave

Interest is charged on the remaining balance and you are clearing this each month already. Anything you pay in now (e.g. your £14k) will go purely to clearing capital - so as Clapton says it makes sense to get this in as soon as possible so you reduce the balance and thereby reduce the interest charged. That should result in a reduction in your current mnthly payment although you may have to ask for a recalculation.

kitjos

Brilliant, thanks for the quick replys

I thought if i put the 14k down as of now then it will just take it off my interest without touching the capital. Lloyds are allowing 10% off per year so thats what im planning to do. So in theory, if i do as above.. then my mortgage would go from £139,500 to £125,500 and i would be paying my 5.70% off that amount instead, which would give us a lower monthly payment once requested.

Im glad youve helped, please correct me if what ive put above is wrong x

lulabelle1

Exactly, you got it!