Is it better to pay in a lump-sum yearly, or monthly if you had the luxury to choose?

LiveOnce

Hi all,

Is it better to pay in a lump-sum yearly, or monthly if you had the luxury to choose?

E.g. Is it better to pay £10,000 in a lump-sum every January every year, or increase your monthly payments by say £300?

In the long-term which one works out better? Or are they both the same?

I have heard paying off as early as possible lowers the Interest but I don't know which of the two above is better for this goal.

getmore4less

If you paid it all off today or paid it over 20 years which would cost the most?

That's how it works for every payment no matter how small.

medusasmummy

it depends on whether your interest is calculated daily, monthly or yearly.
daily, or monthly i would over regularly throughout the year
yearly in a lump sum so i could possibly earn a bit of interest on it.

LadyGnome

If you have £10k to hand now then a lump sum is the best option as you will lower interest by the full amount for the whole year. If you need to save up the £10k then you would be better increasing monthly payments to benefit from the immediate interest reduction (assuming your interest is calculated at least monthly).
The one caveat is if your mortgage rate is lower than the interest rate on your savings, then saving up and paying a lump sum is better.

michelle09

Depends on when the interest is calculated. My parents had a mortgage where interest was calculated and added on January 1st, so they saved up and made one lump overpayment every December.

Mine is calculated daily so money gets thrown on as soon as we have it spare.