Overpayment Query

stewil18

Hopefully an easy question to answer.....

We currently have a 30 year mortgage with £110,000 left to pay - our monthly payment is approx £575.

I want to clear the mortgage before i die, so have decided to overpay £50 a month for now (what i can comfortably afford) and I have 2 choices.

I either (a) just start paying the £625 from now on and start saving interest straight away or:

(b) I save the £50 a month till I amass £500 and pay a lump sum off the mortgage, this has the benefit of reducing my required monthly payment but if i keep the payment at the usual amount, i am ineffect making an overpayment and getting a 'double' benefit. Then keep doing this every time i have £500 saved.

I am wondering whether there are any clever bods who could work out whether (a) or (b) was the best option for saving time and money?

TIA

kingstreet

If the mortgage rate is higher than the savings rate, make the monthly overpayments. If it's the other way round, do the other thing, or consider keeping the savings until such times as the rates change the other way.

Make sure you can make regular overpayments without penalty. Some mortgage products allow you to pay off 10% a year penalty-free but restrict how you physically do it.

stewil18

I can make over-payments without penalty and from what i have read it doesn't appear to be capped, not that i am likely to go over the 10% mark at the moment.

kingstreet

Should be fine then.

If you pay by direct debit, you need to ask your lender to increase your payments. They may suggest you run a separate standing order alongside their direct debit which allows you to keep control.

If you pay by standing order already, you need to instruct your bank to increase the amount paid each month.

themull1

Check on the mortgage overpayment calculator to see how much you can save in interest, i would imagine it would be better overpaying the mortgage rather than saving the money up first. Unless the interest is calculated yearly, where the money can be saved and paid before the next interest calculation.