Overpayment, when to do it?

marman1981

Hi guys,

I am finishing next month my 2 years fixed rate mortgage at 2.99% (still other 13 years left though) and I am renegotiating it for another 2 years fixed rate at 2.19% interest rate.
The balance to pay is still £108,000
This year I haven't done any overpayment, so I can give the 10% of the remaining balance.
The question is... Is more convenient to pay the overpayment now with the rate at 2.99% or wait till next month with 2.19%? Does it actually change anything?

Thanks

[Deleted User]

The sooner you pay it, the less interest you would be charged.

dimbo61

If you have more spare money? You could ask to pay a bigger lump sum off.
Wait until the fix ends and you drop onto the SVR then overpay whatever you can afford.
Start the new fix with a Lower balance.
The sooner you overpay whatever you can afford the less Interest you pay your lender.

marman1981

So the interest rate is not relevant when doing an overpayment, right?

lee111s

Nope, the sooner the better!

andyfromotley

Nope, you overpayment reduces your capital, none of it goes towards interest. As said the sooner you pay it the less interest you pay as your outstanding balance (upon which you are charged interest) is less.

marman1981

Thanks! That's odd, since the Santander Mortgage advisor told me that overpayment goes to both capital and interest :S I'm confused now

andyfromotley

marman1981 wrote: »

Thanks! That's odd, since the Santander Mortgage advisor told me that overpayment goes to both capital and interest :S I'm confused now

me too Marman. Why don't you ring them and double check. I was pretty certain of my view on this but i'm now worried i may be wrong!!

Jonbvn

andyfromotley wrote: »

me too Marman. Why don't you ring them and double check. I was pretty certain of my view on this but i'm now worried i may be wrong!!

Overpayments will always just reduce the capital. Regular payments must cover the interest, otherwise the outstanding mortage would increase.

I am guessing is that the advisor asked whether you wanted to reduce the term or the monthly payment amount.