Does overpaying affect monthly payments?

dmhouse256

(Sorry about the confusion with a previous thread - this is the question I actually intended to ask!)

When you overpay on your mortgage, what happens to your monthly payments? Do they get recalculated to a lower number such that you will finish your mortgage at the same time, or do they remain constant, and you just finish paying sooner?

I'm basically wondering: if I get a tracker mortgage, and the base rate goes up, can I overpay a lump sum to make my monthly payments come down again?

I guess that I could always overpay a lump sum, then remortgage, but some of the deals I'm looking at have charges if you leave them within the first couple of years.

flicks

I believe it is for you to tell your lender which option you wish to take. Not sure but I think if you just make an overpayment without specifying what to do they will reduce your monthly payments.


When we overpay on ours we phone them and tell them to keep the monthly payments the same so the term reduces slightly.


Just make sure that you are allowed to make overpayments on your mortgage without penalties first though whatever you do.

SG27

It depends on the lender. Some reduce the term, some reduce future payments and some don't a wierd combination of both!

adindas

flicks wrote: »

I believe it is for you to tell your lender which option you wish to take. Not sure but I think if you just make an overpayment without specifying what to do they will reduce your monthly payments.


When we overpay on ours we phone them and tell them to keep the monthly payments the same so the term reduces slightly.


Just make sure that you are allowed to make overpayments on your mortgage without penalties first though whatever you do.

IMHO, if the interest is not high, it is better to keep the duration stay the same and then reduce the monthly payment. You could put your money into high interest current account or drip feed to High interest regular saver.

Thrugelmir

Normally your monthly payments will remain the same. As lenders systems are only geared to recalculate the monthly repayment due on interest rate changes.

Shortening the term is a legal contractual change. So requires your authorisation.

Overpaying will ultimately shorten the time it takes to repay your mortgage. No least that the amount of interest will reduce significantly. As the saving will snowball and compound.

gazter

You need to specify, reducing the monthly payment is pretty much pointless, it would knock very little off the monthly amount.

Over paying in the first few years as a tremendous impact. When you are making repayments, you are paying the interest plus capital repayment. The interest is calculated on the balance. So for example, you borrow £150,000 at 4%.
Your monthly payments are £792 a month, £9,500 a year. Out of that £9,500 only £3,600 goes towards paying down the mortgage.

If you have the capacity to overpay, your best position would be to reduce the overall capital, and when you re-mortgage you will be in a better position.

attila_

adindas wrote: »

IMHO, if the interest is not high, it is better to keep the duration stay the same and then reduce the monthly payment. You could put your money into high interest current account or drip feed to High interest regular saver.

I suggest total opposite. Reduce term asap. Every month you reduce you not only save capital but also interest.

Unless you're investing in schemes where your capital is at risk you won't be earning more in savings interest than what your mortgage will be (tax free or after tax).

adindas

attila_ wrote: »

I suggest total opposite. Reduce term asap. Every month you reduce you not only save capital but also interest.

Unless you're investing in schemes where your capital is at risk you won't be earning more in savings interest than what your mortgage will be (tax free or after tax).

Not really, It depends on where do you save your money.
I am feeding my Saffron regular saver ISA with £1,250 a month and I am getting 4% interest.

My Loyd s account is paying me 4% e.g 3.2 after tax. MyTSB plus account is paying me 5% interest.
I am currently feeding the other few regular saver with interest of at least 4% (e.g 3.2% after tax). My Mortgage is lower than this at the moment.

Some of the money come from the reduced monthly payment of my mortgage which I have overpaid.

As soon as I get the opportunity to overpay without penalty, I will overpay again. Again some of the money come from the reduced monthly payment of my mortgage.

attila_

Granted the OP has yet to state what their mortgage interest rate is...

SG27

gazter wrote: »

You need to specify, reducing the monthly payment is pretty much pointless, it would knock very little off the monthly amount.

It's not pointless. With my bank any one off OPs reduce future payments and I like to pay random sums when I have spare cash. It will still save the exact same interest and also gives you the captivity to over pay by slightly more when your repayments drop.

We actually overpay a fixed sum each month which does reduce the term so I am actually reducing the term and future payments! Which I kind of nice.

getmore4less

By lowering the payment you reduce your contractual commitment.


As long as you are within any overpayment limits before penalties kick in you get the control.


Get a good tracker and never need to change product/remortgage again unless you move or need more money.