Overpaying impact on monthly payments

easilydistracted

I own my first house which I bought with a long term partner who then proceeded to fall to bits with the responsibility of home ownership and general grown up life. As a result I bought him out and now have quite a large, although manageable, mortgage with about 5 years of a seven year fix left to run.

I am now in a relatively new relationship and moving into my new partners flat where the rent is really cheap and I am renting out rooms in my house. This will allow me to overpay my mortgage and plan for our longer term.

Is there any way of working out the impact the overpayments will have on the monthly payment? As I am near the start of a 30 year term the overpayments appear to have very little effect on the size of the mortgage to begin with as it's paying off interest. Does this mean the monthly payments will change very little even if I make lots of efforts to overpay in the short term? I'm nervous about having such an unchangeable big commitment for the next few years, but the penalty for breaking the mortgage is also really big.

Thanks

Foxy-Stoat_3

You can make over payments but the monthly mortgage payment will not change. Your over payments will show on your annual statement and normally go to pay down the capital.

I know with my lender, if I over pay say by a couple of months, I can ask for a payment holiday if I need to.

martinsurrey

Foxy-Stoat wrote: »

You can make over payments but the monthly mortgage payment will not change. Your over payments will show on your annual statement and normally go to pay down the capital.

I know with my lender, if I over pay say by a couple of months, I can ask for a payment holiday if I need to.

Wrong,

OP you need to read the details of your product.

On a lot of fixed rates, if you overpay during the fixed rate period they will reduce the monthly payment on your mortgage and keep the term the same.

As a rough guide, with 33 years to go, for every 1% of your mortgage balance you overpay by, you will reduce your monthly payment by 1%, if you tell us the fixed rate, the outstanding mortgage balance and the exact term remaining I can work it out for you.

Foxy-Stoat_3

"Making regular or lump-sum additional payments to your mortgage will reduce your outstanding balance and save you interest."

Taken from my lender's website.

martinsurrey

Foxy-Stoat wrote: »

"Making regular or lump-sum additional payments to your mortgage will reduce your outstanding balance and save you interest."

Taken from my lender's website.

which means one of two things

1) the term stays the same and you pay less per month.
2) the payment stays the same and the term comes down.

your loan documentation will tell you your options and constraints (which will be different depending on product and lender).

TBagpuss

have you checked the early repayment calculator? http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

Your overpayments normally go to pay off capital, it is your normal monthly payments which will, in the early stages of the mortgage, be mostly interest.

As you make overpayments, the effects start to snowball, as as you reduce the capital, you are paying interest on a smaller sum, so the amount of your monthly payment which is capital not interest increases

amnblog

Three observations.


1. I would be surprised if your lender has given you permission to 'rent our rooms' in your former home. (This is an area of the market jam packed with regulation)


2. Do not forget the taxman will be entitled to his share


3. You mortgage product may evoke penalties if you overpay by too much.

easilydistracted

Ok, not sure how to quote messages but in response to the queries in each post:

-My mortgage has about £176000 left to go on it, I think the rate is 4.69% It's Halifax and I can overpay up to £499 a month without penalty. I can reduce the monthly payment rather than term. The LTV is 90%. It's 28 years left approximately.

-I can see the impact on capital on the overpayment calculator but can't see anything that tells you the impact on monthly payments. I might be wrong?

-amnblog: I simplified the question so I didn't end up rambling on too much and get no replies. I am actually taking a temporary job in which I will stay with my new partner in the working week. I won't be on the tenancy and he will pay all the rent for the moment (I pay for lots of other stuff for us) This is with a plan to return after the temp term if I can't get further work or the relationship doesn't work out. It's early days and I got stung the last time. So I still have my room at home and will be there most weekends feeding the cat and staying and my two lodgers moved in a while ago as lodgers (and friends of mine). If I leave permanently I will let the whole house out with consent to let. Halifax are aware of the lodgers. I'm aware of the tax implications. Thanks for the thought though.

amnblog

In your post your property sounded dangerously close to this:


https://www.gov.uk/private-renting/houses-in-multiple-occupation

easilydistracted

Hmm amnblog perhaps I made it sound like more of a palace than the small Victorian terrace it is. Our council sets additional HMO rules than the government scheme, for instance excluding the three story rule and I've checked against them all. I have two lodgers who are aware that if I don't come back it's going to be let with an AST, a which point they will go as they don't want the commitment of needing to give a whole months notice on their rent day or being commited to a minimum term.

martinsurrey

With that info (£176k, 4.69% and 28 years)

I get monthly payments of £942.

for every £100 you overpay you will reduce your monthly payment by 53p

but over the remaining life of the loan that £100 overpayment today will save you £78 in interest (53p per month for 28 years less the £100 capital you would have repaid in that time).

by overpaying you are playing the long term game.