What do overpayments get put towards?

Ransom_Dry_Elk

When you make an overpayment does it go towards the principal, interest or just the total amount? When I've made overpayments before it's never been mentioned but it'd probably make more sense to throw it at the principal so you have less to pay interest on. Do any vendors offer this as an option?

kev2009

Hi,

Totally new to Mortgages/over payments but from what I understand you can request the over payment pay off the capital (which is best from what i understand) and then you have to either reduce the term and carry on paying the same monthly payment OR keep the term the same and reduce your monthly payment. Best to check what you can overpay as for example I can only overpay a max of 10% per year. If i pay anymore then i need to pay a early repayment charge which is no small fee.

I'm hoping to contact my mortgage company this week and just clarify between what dates qualify as the year as my mortgage didn't' start in Jan so i'm not sure if it runs Jan - Dec regardless or if it runs from month you took it out. Depending on this answer will depend on when i make my fairly small over payment in comparison to what i owe

Kev

tacpot12

An overpayment should go towards repaying the capital, but not every mortgage lender's systems work in the same way, so depending on when the overpayment is taken into the interest calculation, you may find that not all the overpayment is used to reduce the capital owing.

If you think you will be able to over pay for many years to come, it might be worth rescheduling the loan, or asking your lender whether it will save you interest if you overpay every month, or even moving to a lender with better systems that will recalculate the interest owing after every overpayment.

If you have a choice as to whether any overpayment reduces the term or the monthly payment amount, always choose to reduce the term and leave your monthly payment at its current level. Doing this reduced the term of my mortage from 25 years to 17 and saved an enormous amout of interest.