A question about overpayments

Brokenlynx

So I understand that normally a mortgage repayment consists of:

- A payment of interest, to the lender
- A reduction of the principle

Looking at a mortgage illustration I've recently taken out this is roughly 66% interest to 33% principle each month at the beginning of a mortgage. 

However what happens if I make a lump sum repayment? Does that lump sum exclusively repay the principle? Or is there an interest component to the lump sum repayment?

Also is the singular lump sum repayment notionally different to say overpaying on a recurring basis? 

Thanks in advance. 

South_coast

Your contracted payment takes care of the interest, any additional payments will be reducing the principle only. A lump sum payment would reduce the interest owing sooner than smaller regular overpayments, as the interest is charged on the balance outstanding, and a lump sum would reduce that balance.

However, check with your lender about what they consider to be a lump sum, as most will recalculate your monthly payment (to reduce it) once you make a payment above a certain amount. My mortgage was with NatWest and a payment of £1000 or more in a single payment would recalculate the monthly payment. This would be useful if you are concerned about the size of your contracted payment, as it would lower your monthly commitment, but if you have a lower balance and intend to keep your repayments at nominally at the same amount (by manually overpaying to make up the difference) you could find that you're using up any fee-free overpayment allowance sooner, meaning that money you wouldn't have been charged on repaying if it were falling under your contracted payment starts to have early repayment charges levied on it instead