mortgage overpayment options - which is 'best'?

chubsta

I posed this question in the other mortgage forum but despite 105 views no-one gave a reply so thought i would try here instead!
I am now in a position to make significant overpayments to my mortgage each month but need advice on how to handle them - my bank says this:

How do overpayments work?

If you overpay by less than £500, the balance of your mortgage will reduce and you will be charged interest on the lower balance from the following day. At the next natural mortgage payment change, your monthly payment will be recalculated to include any overpayments you have made.

If you overpay by £500 or more, you can choose how this affects your mortgage:

Pay off my mortgage earlier by reducing my mortgage term

Reduce my future monthly payments

Keep my existing payment and term as-is. (At the next natural mortgage payment change, i.e. interest rate change, my payment will be automatically recalculated).


So, what would be my best option to reduce the amount of interest i pay, therefore paying more of the capital off? If i reduced the monthly payments for instance i would put the money saved in as an overpayment.

any and all advice appreciated, i just can't get my head around the impact of each option!

Thrugelmir

chubsta wrote: »

Keep my existing payment and term as-is. (At the next natural mortgage payment change, i.e. interest rate change, my payment will be automatically recalculated).

On the basis that the overpayments are over £500. Then this is the option I'd opt for.

By not amending the length of the remaining term. You still have the option to reduce your payments should the need arise.

getmore4less

As long as the interest is calculated daily and whichever option you choose you will make the payment the same payments it won't make any difference.

NorthernMonkey1

It depends

If you're planning on making large over payments which could approach your maximum overpayment amount (commonly 10%, but check the t&c) then keep the payments the same.

If you're making smaller overpayments, then reducing the payment and keeping the duration the same will give you more flexibility around smaller payments if circumstances change in future.

chubsta

thanks for the replies, my mortgage payment is currently around 430 per month at i think 2%, i would be planning on overpaying by around an extra £600 per month. I know you can never say never but my circumstances aren't likely to change too much so aside from the odd single month here and there when something comes up i should be regular with the overpayments, doesn't sound like there is too much in the different options though...