Overpayment Question

jam1991

Hi All,
Just wanted to clarify the best way of making a mortgage repayment.
Currently setup to payment monthly payment by Direct Debit - £500.
Then a separate standing order is setup to make an over-payment of - £200.

My statement shows each month:
Mortgage payment
Overypayment
Interest applies.

If I contacted the mortgage provider and asked them to increase the mortgage repayment amount to £700, and stopped the over-payment standing order.

I'm not sure how/when the interest is calculated so just wondered if doing it in 1 payment would work better?

Thanks in advance.

Thrugelmir

You are better making any overpayments separately. Lenders will collect by direct debit the amount required to repay the mortgage over the remaining outstanding term. This is largely an automated process.

Majority of lenders calculate interest daily and charge it monthly. The more you overpay and the earlier you do make the overpayments. The less interest you'll ultimately pay. While the saving in interest may appear low. Over time the savings will compound.

kuratowski

With a standing order you are more in control, you can change the amount or the date whenever it suits you.

Dandytf

kuratowski wrote: »

With a standing order you are more in control, you can change the amount or the date whenever it suits you.

That's what Ive preferred recently, very simple to amend SO via App to include or remove. Overpayment amount.

jam1991

Thanks for the responses.

Ultimately I’m on a 5 year fixed rate, so looking to overpay the £200 every month.

Essentially the DD repayment is taken and then a few days later the SO kicks in and sends the £200.

I was just interested if upping the repayment amount from £500 > £700 would work in my favour/save interest over the 60 months worth of payments.

[Deleted User]

A direct debit of £500 and a standing order for £200 will have the exact, to the penny, effect as a direct debit of £700.

The only difference is that to have a DD of £700 it will require a reduction in your mortgage term so you might be required to go through a full income and expenditure to ensure the payment is affordable.

Move you SO to the same date as your DD and it will be the same (but with more flexibility)

[Deleted User]

Or look in to investments, pensions, savings etc where you can potentially make the £200 in to a much more valuable amount.

I had a client recently that wanted to put down smallest deposit, with longest mortgage possible as he was hammering his pension and his stock linked investments which were massively outperforming the mortgage rate

anna42hmr

Deleted_User wrote: »

The only difference is that to have a DD of £700 it will require a reduction in your mortgage term

Not necessarily, my mortgage (TSB) direct debit it set for £215 more than the actual amount owed.

All that happens then is when i am at the end of my interest rate fix periods is they then reduce the actual direct debits due to stretch over the existing contractual term (however all i do at that point is increase the direct debit overpayment amount further to continue over paying it and clearing the mortgage in a shorter period, but without formally reducing the term.