Query from a newbie

Supadupa

Hi everyone,

I've been reading and getting very inspired by your diaries and am now thinking of beginning the MFW journey myself. I just had a quick question - when I play around with figures in the overpayment calculator it shows that I'm better off to pay a regular annual overpayment rather than a regular monthly overpayment. Why is this? I am happy to put any overpayments into a savings account and transfer them to the mortgage annually plus any interest but I note that most people seem to be overpaying on a monthly basis so maybe the calculator is misleading me!

Can anyone advise me?

Thanks
Soon to be MFW!

happycamel_2

It would depend when your interest is calculated. Mine is calculated daily so I've got an incentive to overpay as early as possible subject to the minimum £500 overpayment value my lender (Santander) subjects me to.

Go back to your mortgage paperwork and find the bit on interest calculations and also overpayment restrictions. This is very important to making payments as efficiently as possible and avoiding any OP charges (for example , I'm fined if I OP by more than 10% of the balance a year).

As to the calculator, paying, say, £12,000 off now would save you more interest than paying £1000 a month for 12 months. But it presupposes that you have the £12k available now. This is because you'd save interest on the full £12 over the whole year. On a monthly OP you'd save the interest on £1k by 12 months, £2k by 11 months etc.

Supadupa

Thanks so much, that all makes sense. I'll dig out my paperwork tonight and get started.