Mortgage overpayments

dangers

I've just started overpaying on our new mortgage which was taken out when we moved in June.

I've recently discovered that I can now see the mortgage details on line which is a new feature from my bank.

When I make an over payment, it would appear some is going off the capital and some off the interest. Is this the best way? I seem to recall reading (a long time ago) that it was better to be fully paid off the capital, but I don't know why.

Can anybody please advise me as to the best way to go?

Cheers

Foxy-Stoat_3

Over payments normally pay off the capital, the lender will normally give you the full information on the annual statement and work out the proper interest/capital repayments there.

argomatt

Assuming that you have a repayment mortgage,

The monthly repayments cover all of the interest, and whatever is left over repays some of the capital. (So as time goes on less interest is due, so more capital is repaid)

As the interest is already paid by the regular payments any overpayment you make goes to pay off capital.

What you need to check is that the bank might then recalculate your monthly payments and reduce the direct debit.

If you are overpaying with the aim of reducing the mortgage term, then you will want to keep the monthly payments the same.

kingstreet

Did you ask the lender to treat your overpayments as a means of shortening the term, not reducing the normal monthly payment?

dangers

Yes, we are on a repayment mortgage. Sorry - should have mentioned that. And it's a fixed rate for five years.

I think I will ring them tomorrow to make sure it goes off the capital - I want to keep the normal payments the same - want to get as much paid off as possible for when the fixed rate comes to an end.

Thank you all for answering.