When in month to overpay mortgage?

xosarahm

Hello!

This is my first time posting but I've been a lurker for about a year and a half when I bought my first house with my partner. It's always been important for us to pay off our mortgage early and we want to make the most of not having children yet and start overpaying after Christmas now we've carpeted the place and done all those horribly expensive jobs. I've checked with our bank and we can overpay penalty-free by 10% which is about £1000 per month but we're hoping to stick to £500 on top of our normal mortgage payment of £582 so it remains affordable.

I've got the standing order in place but my question is when in the month is it best to send the money to have most effect on the interest? Would this be at the end of the month a couple days before the interest is added or at the beginning of the month just after the mortgage payment is taken?

I hope this makes sense and I really appreciate your help!

muhandis

Most lenders calculate interest on a daily basis. In that case, it will not make a difference as to when in the month an overpayment is made.

Who is the lender?

xosarahm wrote: »

Hello!

This is my first time posting but I've been a lurker for about a year and a half when I bought my first house with my partner. It's always been important for us to pay off our mortgage early and we want to make the most of not having children yet and start overpaying after Christmas now we've carpeted the place and done all those horribly expensive jobs. I've checked with our bank and we can overpay penalty-free by 10% which is about £1000 per month but we're hoping to stick to £500 on top of our normal mortgage payment of £582 so it remains affordable.

I've got the standing order in place but my question is when in the month is it best to send the money to have most effect on the interest? Would this be at the end of the month a couple days before the interest is added or at the beginning of the month just after the mortgage payment is taken?

I hope this makes sense and I really appreciate your help!

xosarahm

Hi muhandis.

The lender is Halifax and I'm under the impression that our interest is calculated monthly.

Thanks

dunstonh

Interest is charged on a daily basis. Most lenders will apply the changes in interest on the day the credit is allocated to your mortgage account. There are some exceptions that could apply with certain lenders or certain mortgages.

xosarahm

Hi dunstonh,

It looks like you're right, it is calculated daily. Does that mean, like what muhandis said, that it won't make a difference when in the month I overpay?

muhandis

How is my mortgage interest calculated?

The interest on your mortgage is calculated either on a daily or an annual basis. Check your annual statement to find out which method applies to your mortgage. All product rates listed on our website today are on daily interest.


Any payment that you make will reduce the balance and therefore the amount of interest you are charged from the day that we receive it.

http://www.halifax.co.uk/mortgages/existing-customers/managing-your-mortgage/#how%20is%20my%20mortgage%20interest%20calculated

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From the information on the website and the fact that your mortgage was taken out recently, it is more likely than not that your interest is calculated and compounded on a daily basis and hence any overpayment made will reduce the balance (and thus interest) from the day that Halifax receives it.


Hope that helps.

xosarahm wrote: »

Hi muhandis.

The lender is Halifax and I'm under the impression that our interest is calculated monthly.

Thanks

xosarahm

Thanks muhandis, that was really helpful Least I don't have to panic about getting it in at a certain time!

AnotherJoe

Also, watch what happens to your monthly DD. They may either keep it the same (shortening the term of the mortgage), or they may lower it (to keep the mortgage term the same) in which latter case, in order to achieve the full effect you want you need to gradually raise your overpayment. example, if you overpay by £500 and they drop the DD by £7.36, next month pay £507.36.

Some banks give you the choice, mine did but then sometimes they'd forget so i eventually gave up trying to correct them and just overpaid more.

amnblog

How much is the monthly interest on £500?


I don't think it's a deal breaker.


Do what suits when you are paid.

xosarahm

That's interesting AnotherJoe, I'll definitely keep my eye on my regular monthly payments.

amnblog, our interest rate is 3.88% on a mortgage of £113,344 with 25 years and 8 months left to pay, so we pay £582.26 a month with around £375 of that being interest if that helps at all? (what a horrifying thought!)

getmore4less

With day interest the sooner the better is the time to pay it so as soon as it hits your bank send it to the mortgage.

3.88% saves you up to £1.60 every £500 overpayment.