Overpayment question

Silence101

Probably a silly question, but I hear there's no such thing :rotfl:

When mortgage providers say they allow 10% overpayment annually, does that mean I need to take the
A) mortgage remaining /years left on mortgage/12x0.1? to find out how much they'll allow to overpay monthly?
Or is it mortgage remaining /12 x0.1?
Obviously option A means we could potentially overpay a lot less than option B so I want to make sure we understand the maximum we are allowed to overpay.

Thanks

kingstreet

It's usually 10% of the outstanding balance, or 10% of the original loan amount.

It varies from lender to lender.

Monthly amounts can vary as long as you don't exceed the above in perhaps a calendar or 'mortgage' year.

getmore4less

Different lenders have differing description of what the mean by 10%.

Typically if will be around 10% of full balance at some point in the year.

Some get a bit mean and include the small overpayment if you decrease the balance but keep the payment the same.

Silence101

Ok, thanks, that makes sense.
And is overpaying usually better than saving another deposit? We're planning on first saving for our emergency fund before we start overpaying, but maybe we should try and do a bit of both?

Silence101

getmore4less wrote: »

Different lenders have differing description of what the mean by 10%.

Typically if will be around 10% of full balance at some point in the year.

Some get a bit mean and include the small overpayment if you decrease the balance but keep the payment the same.

Does that mean that if we overpay by £50 for example they will start charging us mortgage plus overpayment as a matter of course?

SouthLondonUser

You really need to look up your mortgage terms and conditions and contact your lender to understand what applies to you.

AFAIK most lenders should reduce your total instalment, keeping the term the same.

E.g. let’s say you have a mortgage with 15 years remaining,at 2% fixed, and the balance is £100k. Your instalment would be £644 per month, of which £167 of interest and £477 of capital. Note that the total instalment stays constant for as long as the rate is constant , but every month you pay more capital and less interest as you are paying down the balance. In other words, the next month your total instalment will be the same, but it will be made up slightly more of capital and slightly less of interest.
Let’s assume you have overpaid by £ 2,000 and your balance is £ 98k. Your installment would now be £631, of which 163 of interest and 467 of capital.

getmore4less

Silence101 wrote: »

Does that mean that if we overpay by £50 for example they will start charging us mortgage plus overpayment as a matter of course?

the default of keep the payment the same or reduce it to take account of the overpayment varies by lender.

most give the choice of how you want to treat overpaymernts.

you need to check your lender or say who it is and someone can tll you how that lender does things.