Mortgage Overpayments

We moved into our home in 2018 with a £115,000 mortgage. In July this year we fixed onto a new 5 year term, thankfully avoiding the chaos that occurred with the mortgage markets. 

Our fix is 2.4%, paying £444 per month. Since this fix started we have been overpaying £400 per month in order to make a big dent into our balance which currently stands at £99,000. We've also been paying our energy payment of £66 per month onto the mortgage as we are fixed on a 3 year energy plan so have low monthly energy bills. 

Question I have is with each overpayment we make does this impact the interest we pay each month? For example in July our £444 monthly payment covered the £208 interest for the month. In a years time with overpayments, will this interest payment lower and in turn more of the £444 payment be put into the capital? Unsure if the 2.4% is charged on the original mortgage value or on the balance at the start of each month of the remaining balance. 


Comments

  • Typically mortgages charge interest on a daily basis so the amount of interest you pay should reduce as the balance of the mortgage reduces (assuming a fixed rather than a variable mortgage rate such as the one you have). 

    Lenders can apply mortgage overpayments in a couple of different ways
    1) By keeping the term the same and reducing the monthly payment amount, OR
    2) By reducing the term but keeping the monthly payment the same

    Do you know how your overpayments are being applied?



    • Original mortgage end date: March 2041
    • Current mortgage end date: Dec 2032 (aiming for October 2025)
    • MFW 2024 #15 £446.24/ £2500 /// MFW 2023 #15 £8,617.84/ £10,000 /// 2022 #15 £7,315.24/ £7250 /// MFW 2021 #15 £8,530.07/ £8500
    • Daily interest is currently £4.44
  • savingholmes
    savingholmes Posts: 26,851
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    You can use the overpayments calculator on this site to work out the difference your overpayments are making and what your end balance will be in a few years time.
    Achieve FIRE/Mortgage Neutrality by mid 2030
    1) MFW Nov 21 £201,999 with 237 payments to go - now £184,341 Equity 26.26% (lower post move compensated by EF)
    2) Mortgage neutral by June 2030 AVC £7,613/£127,466 AVC target 5.97%
    3) FI Age 60 annual income target £12,500/30,000 41.66%
    Achievements: CC free since April 22. 1 year EF from Jan 24 & dedicated pot for home improvements
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