should i pay more on my mortgage than needed ?

meanmachine_2

182_blue wrote:

thats exactly what im doing (halifax saver), so i hope to pay 2 lumps of a year, will this reduce my payments ??, or just the length of my repayment ??, when will i see the benefit

Overpaying reduces the length of the mortgage only, as far as i know.

You don't pay less. It's the same amount every month for the length of the mortgage. The only thing that affect monthly payment is interest rates.

However, you can remortgage and extend the length of your mortgage to reduce monthly outgoings.

With a flexible mortgage overpayments allow you to underpay further down the line, or even to take a payment holiday.

grumbler

182_blue wrote:

...i hope to pay 2 lumps of a year...

AFAIK you cannot withdraw money from regular saving account during a year without losing interest. I don't understand how you are going to make 2 payments a year.

will this reduce my payments ??, or just the length of my repayment ??, when will i see the benefit

As above, overpayments do not affect your monthly payments (however, sometimes 'payment holidays' etc are available after overpaymets). You will see the benefit when you finish your mortgage earlier.

mrcow

meanmachine wrote:

Overpaying reduces the length of the mortgage only, as far as i know.

Not necessarily....it all depends on your lender, so you'll need to double check with them what impact the overpayments will have, and what action you'll need to take to ensure that they have the desired affect that you're looking for.

For example, I have regular monthly overpayments with my C&G mortgage. Everytime there is a base interest rate change, they revaluate my mortgage payments to try and adhere to the original term (so I have to hike my overpayments everytime there is a reduction/hike to ensure that I'm still on track - currently set to save 9 years off my original mortgage and over £55k interest AFAIK BTW! Since I joined this site, for the first time ever, I'm actually finding my mortgage exciting. Sad I know!). I just wish that I'd started this years ago when I got my first mortgage.

I'm personally amazed that everyone - particularly those who bought before 2000 - isn't furiously overpaying to cut down their mortgage terms.

I was thinking this when reading throught the 'what do you spend your money on when you're debt free' (or something like that!) thread. There are loads of people stating that they are debt free, but it's obvious from their posts that they still have a mortgage for which they are forking out thousands of pounds of interest. You are right of course though....it's all a matter of individual balance and preference.

182_blue

grumbler wrote:

AFAIK you cannot withdraw money from regular saving account during a year without losing interest. I don't understand how you are going to make 2 payments a year. As above, overpayments do not affect your monthly payments (however, sometimes 'payment holidays' etc are available after overpaymets). You will see the benefit when you finish your mortgage earlier.

yeh i know i can only withdraw the money once a year, but i have more than one source for my money

Kantankrus_Mare

I have an interest only mortgage which should finish in 8 yrs time.

Of course the two endowments I have are going to no way cover what we borrowed and are in the process of complaining about mis selling.

We have got 2500 compensation off the first endowment and still waiting for news on the other. When we have have paid any compensation off amount borrowed we will still be left owing so rather than take out a repayment mortgage which I think is a bad idea when only 8 yrs left. Id like to over pay on the balance left.

Presumably my monthly payments should go down anyhow after paying off compo but Im with Nationwide and normally my mortgage payments are only changed once a year (in Jan) but interest is charged daily?

Would it therefore benefit me to save the overpayments in a high interest account and pay off mortgage just before the rate change?

Not even sure what Im allowed to overpay with them but they are supposed to be letting me know.

grumbler

Kantankrus_Mare wrote:

...normally my mortgage payments are only changed once a year (in Jan) but interest is charged daily?

Would it therefore benefit me to save the overpayments in a high interest account and pay off mortgage just before the rate change?...

What do you mean 'before the rate change'? Payments are changed once a year, but interest rate can be changed many times during a year.
It is only worth saving overpayments in a saving accont if this accont pays you higher interest (after tax for not-ISA account) than you pay on your mortgage.

Kantankrus_Mare

Sorry I meant payment change.

For instance if I paid off say 1000 quid (my pound sign has gone walkabout)
in February wouldnt I have to wait till the following January to see the benefit of lower interest payments?

grumbler

Kantankrus_Mare wrote:

Sorry I meant payment change.

For instance if I paid off say 1000 quid (my pound sign has gone walkabout)
in February wouldnt I have to wait till the following January to see the benefit of lower interest payments?

Interest on mortgage and savings is calculated usually on daily basis. Monthly mortgage paymet (fixed) has to (variable) components: interest + repayment. If you make lump sum payment at any time your interest component drops with immediat effect and repayment component rises. Only if saving accont pays higher interest (after tax) than you pay for mortgage it is worth delaying lamp sum payments.

Joe_Bloggs

@Kantankrus Mare
With an interest only mortgage there is no fixed monthly capital repayment schedule. Lenders are often flexible as to when you can make repayments over and above the interest due on the capital. These capital repayments are supposed to come from some other investments. Cash in the bank prior to speculation should be good enough for most lenders.

It should be written in the terms and conditions when capital payments are taken into account and subsequently reduce the outstanding capital. This can be as quick as the next working day or as inconvenient as just on one day in a year. The former is more likely with the Nationwide but you will have to check. There may be penalties for paying back too much too soon, often on a sliding scale.

There may be charges for paying off the whole of the mortgage too soon. A redemption quote from your lender would tell you what you will be charged to end the mortgage.

For a Nationwide repayment mortgage you are allowed to overpay £500 a month without penalty and the capital is reduced the next day. You can also borrow this money back.
J_B.

conradmum

For those with a standard Nationwide mortgage: we paid £5000 off ours a few years ago, and we had the option of reducing the monthly payments or reducing the term of the mortgage. We chose the second option. The fewer years you are paying your mortgage, the less interest you pay overall.