Overpayment....or increase installments???

baldchef

Hi, just abit of advice really, looking to pay off mortgage asap, would I be better making an overpayment each month? or building in the amount I was going to pay extra each month, into my monthly installments.

I have a repayment mortgage, if I make overpayments does this come directly off the amount borrowed?

And if I increase the amount of the installments does this pay off the amount borrowed plus the interest.

Many thanks Baldy.

david78

Your lender will have specified an amount each month that you need to pay to clear your mortgage over the term you have agreed (25 years or whatever). What you need to do is work out how much extra you want to overpay each month and add this to what you are paying now. This gives you your new payment amount.

Then contact your lender and ask them to change your monthly payments to the new increased amounts. If they won't let you do it, you can ask if they can shorten the mortgage term by an appropriate number of years to make your monthly payment equal to your new amount. (They can either work this out for you, or you can use the calculator link below).

Some of your current payment is interest, while some of it reduces the amount borrowed. The balance of interest and principal (amount borrowed) depends where you are in the mortgage term -- at the start and more of it is interest; near the end and more of it is principal.

If you increase your payments, the interest due each month is the same, so the increase amount must come of the amount borrowed each month.

You can work out the effect of overpayments (interest saved etc) using one of the free calculators:

http://forums.moneysavingexpert.com/showthread.html?t=155707&page=4

Good luck with it.