Overpayment vs Capital Repayment

Ciderarmy1987

Hi

We currently have a mortgage with Coventry BS. we are looking to staart paying extra as we have money left over each month.

They say

• 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.

A capital repayment will reduce the balance of your mortgage and this in turn will reduce the interest we charge. You then have the option to reduce your regular mortgage payments from the following month onwards, or you can reduce the term of your mortgage, which means you will pay off your mortgage in a shorter period of time.



where as with an overpayment we will credit any additional payment(s) to your mortgage immediately, which means you will be charged less interest overall. However, we will not treat this as a capital repayment unless you specifically ask us to and the terms and conditions of your mortgage allow it. Therefore your payments will not be recalculated.

I understand what will happen with a capital repayment but am confused what will happen with our repayments if we leave them as overpayments

If anybody that can give us any help that would be great

Cheers

getmore4less

no difference to the total paid.

with the overpayment it makes all future regular payments have a small overpayment built in.


once started the only thing that drives the mortgage is how much you pay each month in total.



the best thing usually is to retain flexibility the overpayment option does that as does the reduce payment. subject to overpayment penalties.

CLAPTON

basically one gives you the option of reducing the term of the loan or on keeping the same term but reducing the ongoing monthly payment (that's the 'capital' option)


the other simply reduces the term ( with no option to maintain the term and reduce the monthly payment)

so if you want to simply pay the loan off more quickly, then with the capital type make that option, with the overpayment method then that happens automatically.

getmore4less

CLAPTON wrote: »

basically one gives you the option of reducing the term of the loan or on keeping the same term but reducing the ongoing monthly payment (that's the 'capital' option)


the other simply reduces the term ( with no option to maintain the term and reduce the monthly payment)

so if you want to simply pay the loan off more quickly, then with the capital type make that option, with the overpayment method then that happens automatically.

with the overpayment option you can make the choice in the future . It should not be reducing the contractual term

Ciderarmy1987

getmore4less wrote: »

with the overpayment option you can make the choice in the future . It should not be reducing the contractual term

So what would happen when you get close to the end of the term of the mortgage, surely you could say still have 2 years left but no outstanding balance?

getmore4less

just gets paid off.

if there are charges for early payment just adjust payment close to the end.

Ciderarmy1987

Im still just as confused sorry

Ciderarmy1987

we currently have a 30 year term and have a 5 year fix with early repayment charges for the 1st 5 years

dimbo61

Without checking the Coventry BS website or reading the paperwork that came with your mortgage I cannot be sure that you are allowed to overpay at all.
However many lenders still allow overpayments even while in a fixed rate deal.
Many allow 10% of the outstanding balance each year, some offer 20% of the monthly amount you pay, Nationwide allow £500 a month.

Will you be able to pay more than 3X your monthly payment in overpayments each month ?
Any overpayments will help clear the mortgage quicker

Ciderarmy1987

We are allowed to overpay by 10% of the balance outstanding each year.
We would (at a stretch) be able to save up and pay 3x monthly amount once a year, however we would prefer to pay a smaller amount each month but are unsure of the benefits/disadvantages of doing so

Morgage_Confused

Just pay the smaller regular monthly over payments. Its your best(easiest) option anyway. Once you hit 3x monthly then a recalculation kicks in and your monthly contractural payments are recalculated.