Overpayment paying what?

kara_p_uk

Hi,
I make an overpayment of £50 a month on my mortgage, not a lot but what I can afford. I thought it was going to reduce the term after doing the overpayment calculator on here. I've been making the payment for 2 years but just had my mortgage statement and the term hasn't been reduced. I just looked again at the Lloyds website and noticed this one strap line at the bottom of the overpayments section

"Please note: any additional payments you make will not change your term. Your monthly payment will also not change until we next recalculate it, for example when rates change, unless you contact us and ask us to recalculate it using the reduced balance."

So my question is, what is my £50 paying off if the term isn't reducing? Is the overall debt lower? The interest amount less? Will my monthly repayment go down, which seems to defeat the purpose of an overpayment?
Help!

Thanks,
Kara

Herzlos

It's reducing the balance, and will have an impact on the payments/term when they are next calculated/negotiated.

trailingspouse

As an alternative, you can ask the building society to take the same amount out of your account each month, thus gradually increasing the over payment as the 'normal' payments are reduced.

For example, your normal mortgage payment is £650 per month, and you can afford to pay an additional £50 per month. This makes a total of £700, so you say to the building society that you want to pay £700 every month - you've already worked out that you can afford it. As the £650 reduces, the amount of overpayment increases, but you're still only paying £700.

But don't fret - your £50 a month is doing something - it just isn't showing on the statements yet.

getmore4less

you can ignore the contractual term that just sets the contractual payment.

the real term is based on what you pay, until you start hitting ERC on your overpayments you can just adjust your overpayment up if they reduce the payment.


overpayments reduce the capital you owe and the interest you pay.