Lump sum or monthly overpayments

drinkeroftea

Hello, my partner and I have a mortgage with 185k still remaining. Redemption date is Jan 2044, current term ends Jan 2026.

We have been left some money and would like to use 50k of it towards paying off the mortgage. Are we better off paying in one lump sum or monthly overpayments? Is there a reason why one would be a better option that the other?

Tia for any advice.

BarelySentientAI

The earlier you reduce capital the better - so lump sum tends to be beneficial.

Watch out for the overpayment allowance though.

Or stick the 50k somewhere to earn interest and then make a lump sum payment in Jan 2026 when there are no restrictions.

drinkeroftea

BarelySentientAI said:

The earlier you reduce capital the better - so lump sum tends to be beneficial.

Watch out for the overpayment allowance though.

Or stick the 50k somewhere to earn interest and then make a lump sum payment in Jan 2026 when there are no restrictions.

Thanks for the quick response, sorry if I sound daft here but why would there be no restrictions in Jan 2026 as we would be on a new term so wouldn't the same apply? Cheers 

BarelySentientAI

drinkeroftea said:

BarelySentientAI said:

The earlier you reduce capital the better - so lump sum tends to be beneficial.

Watch out for the overpayment allowance though.

Or stick the 50k somewhere to earn interest and then make a lump sum payment in Jan 2026 when there are no restrictions.

Thanks for the quick response, sorry if I sound daft here but why would there be no restrictions in Jan 2026 as we would be on a new term so wouldn't the same apply? Cheers 

Because you could stay on the SVR for a single day to make the overpayment (which would therefore be unlimited) and then take a new fix the day after.

Newbie_John

Depending on who you bank with - typically you can only overpay 10% of your balance - ask your bank for details as it could vary.

But assuming you with Barclays, here's what you could do:
1) overpay £50k now, you'll pay early repayment charge - so this isn't a good option
2) pay max allowed now - ask them what is it, but STH around £20k, save the rest, and in January you'll have another 10% allowance so about £17k then
3) as mentioned in earlier posts, if your fixed rate ends in Jan, wait for it to end, overpay as much as you want and then fix another day - also good to chat with bank about this approach. There's no early repayment charge outside of fixed rate period, but the % rate is quite high - although for 2 days it won't make much difference
4) if you can get more % after tax from savings than your mortgage interest rate - don't overpay it, you're earning free money. It still gives you a chance to finish your mortgage earlier - when in future your balance drops to 50k - just close the mortgage using savings.

Yorkie1

What is your current rate of interest on your mortgage? If it's lower than you'd get in interest (after tax) then it might be worth putting the savings away until the end of your fix, then as others have said, repay that amount before moving to another fix