Overpayment On Fixed Rate Mortgage

EmberJDIns

I'm making a mortgage overpayment on my 5 year fixed rate. One year into the 5, mortgage over 17 years, the interest is calculated on a daily basis. I was surprised to see only a small reduction in my repayment mortgage total amount owed, have been paying £140+ extra a month for 6 months. Is making overpayments on a fixed rate still a good idea?

pollyanna24

The way I understand it (and I could be wrong) is that the interest rate on your mortgage is a certain amount (dependent upon the total outstanding at the moment).

For example, and these figures are completely random:-

If your mortgage is £1,000 a month, and the interest is £700, then you are paying £300 off the capital. If you decide to pay an extra £140 on top of this amount, you are effectively paying £440 off the actual capital owing. The £700 interest will be the same.

So yes, the £140 is worth paying as you are paying off what you actually owe. I.e. you are not paying more interest that month!

As months go by, because the total amount outstanding is going down (because you are paying some of the capital, more if you are overpaying), so will the interest amount each month. So after a certain amount of time, your £1,000 may be £600 in interest and £400 in repaying the actual amount owed.

Not sure if this makes sense, it does in my head (kinda).

Basically, any extra money you are paying is of what you actually owe, and by making overpayments, you are reducing the amount owed, which in effect reduces the interest (as there is less outstanding for there to be interest on).

Gosh, now I'm waffling!

EmberJDIns

Thanks pollyanna

CLAPTON

not sure i understand the question, your overpayment of 140 per month should reduce your 'amount owed' by 140 each month more than the 'normal ' reduction.... it would be easier if you quoted the actual figures.