Overpayments

ciscobloke1

My Lender doesn't allow for monthly small overpayments, but does allow for a maximum of 10% on the loan balance per year with a minimum overpayment of £2,000

If I save my money and make 1 or 2 of these £2,000 overpayments per year, will it have as much affect on my overall mortgage length/amount of interest saved as if I'd made monthly over payments?

I'm thinking paying £166.66 more per month (£2k divided by 12) would be better than saving for 12 months then paying £2k lump sum off.

Am I right?

cw18

Paying small amounts more frequently would (in theory) mean you are very fractionally better off than paying one payment of the combined amount at the end of the year.

You're best off paying regularly if your interest is recalculated on a daily basis taking each and every overpayment into account......

I used to have a mortage (20 years ago) which was only adjusted due to overpayment once a year -- unless each overpayment was a minimum amount (I seem to recall that being around £500) and I specifically requested a readjustment at the time of paying it.

ciscobloke1

Hmmmmmm thanks

another thing... i plan to over pay to reduce the length of the mortgage and interest paid but how does over paying do this?

If for example I have £100k over 21 years and i over pay this year by £10k in formulas it shows i can knock X amount of years off my mortgage.

Is this done automatically or when I make the payment do i tell them to reduce the term?

[Deleted User]

When you overpay your lender will ask you if you want to reduce your montly payments or reduce the lenght of the term. If they don't ask, make sure you tell them. :beer:

cw18

If I pay £1,000 or more as an overpayment, then the BS automatically reduce the payment from the next month while leaving us on the same term.

If I overpay less than £1,000 (we don't have a minimum) they will continue to claim the same payment each month until it next gets adjusted for a change in interest rates or our annual statement (which in effect means we're then overpaying by pennies each month, as they recalculate interest daily). But I can ask to have the adjustment done immediately if I want them to (still leaving the term the same though).

I don't think ours has any way of using it to reduce the term from their end -- all I can do is continue to make a manual payment (or Standing Order) each month as they won't even take a higher DD on my request!!!

As things stand we have endowments due to pay out in 2011/2012, which should pay off half our mortgage (which actually isn't due to be paid until 2027). At this point I shall be having lengthy conversations with them, as I want to not only continue paying the same monthly figure but also want to pay an extra £80 (or thereabouts) each month -- which is what we are currently paying as premiums for our endowments.