Extra capital payments query?

evosy1978

Hi all

Just trying to understand some figure with my mortgage.

I'm with Monmouthshire building society.  I pay £590 p/m repayment mortgage.

If I pay an extra £100 p/week.  They said I can either reduce the term of my mortgage or decrease my monthly payments. 

Is one route more lucrative financially than the other? (or will i have still paid the same amount of money in the end)
Does this capital payment come off the interest or the mortgage or both?  
Do I end up paying less interest over the term of the mortgage if I pay this capital payment every week?

Thanks

Hoenir

Interest on mortgages is calculated daily and charged monthly.  Any excess that's paid into your mortgage account, i.e. the net of you repayment less interest charged. Will reduce the capital balance owed. In reducing the capital balance owed you will incur less interest on a monthly basis. Think of it as rolling a snowball. Starts very small. Over time grows larger and larger as more snow is picked up. 

The earlier you make overpayments the more interest you'll save over the term of the mortgage. 

The downside of reducing the mortgage term is that it reduces flexibility in the future. You are committed to making a certain level of repayment. Doesn't suit everybody's personal circumstances.

The alternative option is to reduce your standard monthly payment. However increase the level of overpayments ( or decrease if the financial necccessity arises). The caveat here being there's normally an annual overpayment limit such as 10%. 

Paying down a mortgage quicker is best viewed as a running a marathon rather than a sprint.