Confused about the 10% overpayment allowed on mortgage

fimonkey

I know its probably obvious (to everyone except me).With some mortgages you can overpay by 10% with no penalty.

10% of what though? The overall balance? The balance plus the interest owed? Is it calculated annually this 10%, or monthly? (i.e would you save up and pay off the 10% ni one lump sum at the end of the year, or add it onto monthly payments?)

To use a worked example, say I have borrowed 124K over 30 years @ 4.69%. BBC mortgage calculator says a repayment would be £648.63 per month.

What would 10% be (£64.86 per month?) and what would be the max I could pay back each month before I went over this? I have a feeling its not as simple as just 10% of your monthly payments?

Sorry to be a dunce.

betmunch

Its usually 10% of the balance at the start of the year. But you will need to check your offer letter to be suer of the exact terms.

Some are set amounts of overpayments aloud, some are a percent of the monthly payment.

Also, 10% of the balance is the standard but some lenders have difference amounts you can overpay

harvey115

Its usually 10% of the balance at the start of the year as betmunch said.

However I am not sure if this 10% is adjusted every year for as long as you have a fix and the 10% redemption fee applied onto it. Logically this should be calculated every year and at the end of each year the mortgage lender would calculate all your overpayments and check whether you are liable to pay any redemption charges or not i.e. if you have paid anything above the 10% mark for that year.

So from your figures, if you have a mortgage of £123K you would be able to over pay £12.3K with your overpayments/lump sums without any redemption charges. This balance decreases (hopefully) the next year and the overpayment of 10% would be a bit smaller if you are avoiding the redemption charges.

However these standard rules may be applied differently by different lenders.

Hope this helps

marlot

The other way you can often pay more on the mortgage without triggering redemption fees, is to shorten the mortgage term. I did this a couple of times without any problems.