Daily Interest and overpaying

jrsga

Hi

I have a question about the KFI I received for a mortgage. The loan is calculated daily.

It says:

You can make overpayments below £1,000 each calendar month. Any overpayments made will cause the amount upon which interest is charged, to be reduced at the month end.

Does that mean the overpayment is not taken off the captial immediately therefore I pay more interest or have i got that wrong? Or do I just make the overpayment the same day as the monthly mortgage payment?

thanks

ACG

It reads like a bit of a contradiction doesnt it?

I think its badly worded and it means that the figures will be updated at the end of the month - ie they do everyones at the same time. Although it interest is charged daily then it will work it out based on the date ou made the overpayment.... But might be worth double checking with them?

jrsga

Yes, not at all clear.

Whas does anyone think it means?

lee111s

Ask the lender.

Thrugelmir

Interest is calculated on the daily outstanding balance. Then charged to the mortgage account monthly as one amount.

The earlier in the mortgage term you make overpayments the less interest you'll pay.

jrsga

I have just found out that whilst interest is calcualted daily, if you make an overpayment it is not taken off your balance until the end of the month.

Would that be something to avoid? Should I get a product where the balace is reduced immediately?

TrickyDicky101

It won't make a huge difference unless you are either on a high interest rate or you are making very large overpayments.

However, I would avoid on principle and if two deals were the same with this as the only difference, I would take the product that factored in the overpayment immediately.

HappyMJ

I'd keep the savings/mortgage payment in a high interest savings account and make the payment plus overpayment on the last working day of each month. Strange one that....what's the point of daily interest when they don't count credits on the day they are made.

jrsga

When you say it wouldn't make a huge diffence can one put a calculation on that?

e.g 150k over 2 year fixed @ 1.59%. I calculate £6.53 a day. How would one work out how much you would save by an overpayment being taken into account immediately as opposed to it being credited at the end of a month?

TrickyDicky101

Overpayment amount * Interest Rate * Days from payment to month end / 365

would be a pretty close approximation.

So if you made a £1000 overpayment on Day 1 of the month:

1000 * 1.59% *30/365 = £1.31

Thrugelmir

jrsga wrote: »

if you make an overpayment it is not taken off your balance until the end of the month.

Any payments made should be credited to the loan account on the day they are processed by the lender.