Monthly Overpayment V Yearly Overpayment

tinker15

Any smart cookies out there be able to tell me/provide a calculation on which is the best to reduce the term of the mortgage. I am on a daily interest repayment mortgage but the company cannot tell me which is the best to do as it is quite complex. Thanks

getmore4less

Nothing complex about it

The sooner you pay down the debt the lower the interest the shorter the term.

The thing that decides the term are the payments.

stator

Unless you have a savings account paying more interest than your mortgage, paying off the mortgage early would save you the most money. I assume you have other savings in case things go wrong?

tinker15

Thanks for your replies. I know overpaying is a no brainer but it's whether to pay monthly or an annual overpayment. If paying monthly, it reduces the interest but paying annually they recalculate to reduce the term as well as the interest.
The question I have I suppose is do they work out all their calculations on your initial term if paying monthly & adjust the term yearly if making an annual payment?
They are able to tell me how much I can reduce my term if paying monthly but an annual overpayment is "more complex" which makes me think that paying annually would be the better option overall.

Edi81

Following the introduction of MMR many lenders make you go through affordability tests when wanting to reduce the term with the overpayment.

It's therefore easier to just make the overpayment against the balance and in time, the term will naturally reduce.

getmore4less

The term is irrelevant other than setting a contractual payment.

What determines the actual term is what you pay, sooner is better.

tinker15

Thanks for all your replies.

ccbrowning

Annually or monthly depends on the lender. My mortgage through Leeds has the interest calculated once per year, so it is best for me to point the money in a savings account (for example) for most of the year and then pay a lump sum before the yearly interest calculation.

d70cw6

if your interest is calculated daily then overpay as soon as you can - no point saving up and overpaying a higher lump sum once a year.