Overpayment Vs Capital repayment

Mitus

Hi all,
I have searched this and it has been covered before but I'm still unsure what is best for me so hoping for some advice! Currently have a Coventry BS mortgage which is 0.75% above base rate, so at time of writing, 1.25%. It's term ends in May 2036 and it is £490pm, however over the last year or so I've been overpaying by £760pm in a bid to be mortgage free sooner Have been finding this amount to be manageable so intend to keep it that way!
However, I've now been paying closer attention to the T&C's of overpaying, this is taken from Coventry's website and is the category I currently fall into:

If the equivalent of 3 x your normal monthly payment is greater than or equal to £1,000 then:
Any additional payment greater than three times your monthly payment will be treated as a capital repayment.
Any additional payment less than three times your monthly payment will be treated as an overpayment.

The bit in bold being what is currently happening. I had to study this for a long time to realise what they were saying! Now that I do understand the difference between a capital repayment and an overpayment, my next problem is that my maths isn't good enough to work out what it best for me! It occurred to me that over a 2 month period, I'd fall into the capital repayment category anyway, as I'm paying a total of £1520 over what I should be. My options then are to reduce the calculated monthly payment, or reduce the term. I guess reduce the monthly payment would be better, because then a higher percentage of my total payment would become an overpayment, correct?

What I'd like to know is, on the interest rate I'm on, will it really have much of a beneficial impact? In reality what I'd do is ask them to take £500pm on my direct debit, then setup a regular payment of £1500 every 2 months to keep the numbers simple.

Hope this all makes sense and look forward to hearing your advice

foreversummer

Hi Mitus

I'm afraid I cannot answer the technical bits, but have you considered saving the money you are using to overpay by putting it into ISAs/Regular Savings Accounts? With a low interest rate of 1.25% you can easily beat that.

Foreversummer

Mitus

Thanks for the reply foreversummer

I've filled my cash ISA this year and have enough to put straight into next years allowance too Also have the First Direct regular saver @ 8% and Nationwide @ 6% which I put the max into monthly. It has crossed my mind to open more but I like to see the mortgage coming down and it also removes the temptation to use the money elsewhere if it's going against the mortgage!