Timing the overpayments

Casper7

I have a mortgage from Halifax. (Repayment).

The monthly payment is paid on the 20th of the month.

The interest is added to the account on the 30th/31st of the month.

I am planning to make monthly overpayments in order to decrease the charged interest and eventually shorten the whole mortgage term.

Does anyone know how the interest is calculated and if there is a good date during the month to make those overpayments in order to achieve best reduction in interest charges?

TheMilkmansDad

Interest is charged as a daily rate, so the earlier you make payment the less interest is charged.

So I'd say 1st of the month .

getmore4less

With daily interest the date you use is the date you have the spare money.

usually the day you get paid but depends how you budget.

There are ways to bring forward money like 0% purchase credit cards, you pay for stuff on then and overpay early what you would overpay layer

to see how the timing makes a difference

on a £100k 25y 2% mortgage with a regular £100pm overpayment.


First year

amount	rate	payment	owing	interest
£100,000.00	2.00%	£423.85	£96,885.30	£1,971.55

£100 overpayment at beginning or end of months(max difference) 

Start of  month Is like ((£100*(12+11+10.....)*2%/12)  (66*2/12) = £11
end of month is like  ((£100*(11+10+9.....)*2%/12)   (78*2/12) = £13

(same as £100 for the year difference £2)

You can also model to capture the effect of the regular payment also including a small overpayment once started
(£100 less to compare beginning against end is an approximation)

amount	rate	payment	owing	interest
£100,000.00	2.00%	£523.85	£95,674.29	£1,960.49
£99,900.00	2.00%	£523.85	£95,572.27	£1,958.47

£100  end of month saves £11.06
£100 start of month saves £13.08