Overpayment-monthly or in one lump sum?

havingaball74

Hi all,
I have a fixed rate mortgage with HSBC.  I'd like to make overpay within the 10% allowed. I believe that HSBC calculates the interest daily. Is it better to pay £12k in one lump sum or £1000 monthly (as an example)?
Thank you!

blue_max_3

What is the fixed rate? And where do you have the lump sum?
If you are paying 2% interest on your mortgage and 1% on your savings, you are better off paying the mortgage.
Paying in a lump sum is better as it saves you the difference (1% in this case) from day 1.
Paying in monthly keeps your options open in case of any changes in your circumstances.

dimbo61

Most people get paid monthly and therefore overpay every month with spare money !
You still need that emergency fund just in case a Pandemic comes along 
Sitting with 6/9/12 months of income in a savings account can help you sleep better at night.
If you can build up a good overpayment pot you can then apply for a mortgage holiday when really needed. 

Thrugelmir

The sooner you overpay the more that you will benefit. 

Socajam

I would save the overpayment in Premium Bonds and then repay annually.
I would also make sure that I have a good emergency fund and life happens fund - remember we are going through a pandemic with no idea what is coming post corona virus - employment, economy etc.
You don't want to be in a position where are overpaying and then something happens and wished you had the cash on hand

havingaball74

Thank you. Our loan amount is £100k and we both have secure jobs and emergency funds. We calculated that by paying off 10% (£10000) in one lump sum now we would pay the debt off 1 year and 9 months earlier. We are 3 years into a 5 year fixed rate. Is there any benefit to making the lump sum now to paying it at the end of the fix? Both are allowed as part of our mortgage term. Do we save more money making the payment 2 years earlier? The monthly payment stays the same, the interest rate stays the same so how do we save money making the payment now? Thank you.

getmore4less

If they let you keep the payment the same then more of that payment is capital as the interest is lower because it is on a smaller amount.

havingaball74

So when I get my mortgage statement the amount of interest I pay on the mortgage each month will be lower? So it's better to pay the lump sum sooner?

havingaball74

Or will we not see any changes straight away?