Basic question re. overpaying mortgage

zoothornrollo_2

If you are in the middle of a fixed-rate deal, does overpaying with a lump sum reduce your subsequent monthly payments immediately?
thanks in advance

propertyhunter

Yes. I've done this many times. Phone your mortgage provider to inform them of the additional amount you are overpaying, ensuring you are not going to be charged an overpayment charge (usually 10% of the outstanding balance each year is fine). They will also calculate your new monthly payments, which will start when they tell you (depends how close you are to your next direct debit).  

Edi81

Depends on the lender and how much lump overpayment is. 

400ixl

Check with your lender. Some will reduce the monthly payment, others reduce the term by default but may be willing to reduce the payment.

Don't take it as gospel that what happens for one person on a completely different mortgage product will also apply to you.

rjmachin

When I overpaid my Halifax mortgage, they did not recalculate/reduce my monthly payment until a Bank Of England interest rate change occurred.

At the time, that happened on the very odd occasion, but now, its almost monthly.

zoothornrollo_2

Thanks all. I ask because I am trying to calculate the pros and cons of paying down mortgage versus into pension. The pros of the former reduce significantly if your monthly payments don't go down! 

ElwoodBlues

zoothornrollo_2 said:

Thanks all. I ask because I am trying to calculate the pros and cons of paying down mortgage versus into pension. The pros of the former reduce significantly if your monthly payments don't go down! 

Well, you'd owe the lender less money, and so you'll incur less interest going forward. So either the monthly payment has to reduce, or the term does. However, some lenders don't recalculate the monthly repayment immediately, depending on how much your lump sum is. Some give you the choice as to what to do.

Mine (with Natwest), allows me to overpay up £1000 without them recalculating the monthly repayment to preserve the term. So I've overpaid in multiples of £995 in order to avoid triggering the recalculation. Expect it'll get done automatically whenever I refix or switch product though.