New to property ladder - overpayment confusion.

Mrstudent

Please can someone help me clarify...

I have a 90% mortgage - borrowing £81,000 over 25yrs.
Monthly payments £441.30 (4.34%).
I can overpay by 10% without incurring a penalty charge.

My question is - is that 10% of the monthly payment, or 10% of the remaining balance?

Basically, what is the maximum amount I can pay per month without incurring a charge?

Many thanks

ACG

You should have received a KFI (Document with the facts and figures regarding your mortgage). Towards the back it will have a bit regarding overpaying - but its usually 10% of the balance at a set date.

Mrstudent

It states overpayments up to 10% of the outstanding balance each calander year.

hamster2013

then that means that you can pay up to £529 every year -
you can also chose to pay £52 every month if you want to spread it out.

pick up phone and call your mortgage provider - they will tell you when your 'year' starts so that you know when you should pay the lump sum.

Mrstudent

Thank you very much for the clarification

Gary123456790

hamster2013 wrote: »

then that means that you can pay up to £529 every year

It is 10% of the outstanding balance NOT 10% of the payments.

Therefore 10% of £81,000 in year 1 so an additional £8,100 or £675 each month.

The total you could pay in a month is therefore:

normal payment £441.30
plus monthly overpayment if £675

total: £1,116.30

You should always keep an emergency fund for car repairs / boiler breakdown / etc so you have a buffer rather than putting every available penny in to the mortgage.

Gary.

hamster2013

you are right
my mistake

Yorkie1

If it is 10% of the outstanding balance, then this will go down every year. It is not 10% of the original loan every year.

So, in year 1 the outstanding balance at the start was £81K - so the maths as outlined above.

If you made no overpayments in year 1, your balance at the end of the year / at the start of year two would be apx £79K, so total of £7900 overpayments would be permitted the following year i.e. £658 per month in year two if you chose to pay monthly.

If you made full overpayments in year 1, I think your balance at the end of the year / start of year two would be nearly £71K. So 10% of that would be apx £7100, i.e. £592 overpayments per month that year.

Or at least, that's how the maths would go.