Overpayment question

Ximian

Hi all,

I have a question about overpaying on a fixed rate mortgage. With some mortgages you are allowed to overpay by 10% annually with no penalties. Does anyone know if:

Interest is calculated on a daily basis?
If the payments are adjusted every month, for example if the monthly payments decrease if a lump sum of say £2000 was paid in?

It's a fixed rate mortgage and I'm trying to understand if there are any benefits achieved during the fixed rate period. If not, I'm thinking of saving that money that would have been used for a lump sum payment at the end of the fixed rate term.

TIA

MarkyMarkD

The answer will depend on your lender and even the date you took out the mortgage.

In turn - interest may be calculated on a daily, monthly, or annual basis.

If you overpay, most lenders will allow you to ask to have your payments reduced or your term reduced.

There are definitely benefits in overpaying during the fixed rate period, as long as you don't incur any penalties and you couldn't earn a higher (net) rate of interest on the money compared to your mortgage rate. If the opposite applies, then saving the money and using it as a lump sum at the end of the fixed rate is the right way to go.

owitemisermusa

Your lender should provide with the details of how interest is calculated. It should be in the Key Facts document or Mortgage Terms.

If you can't find it, just ask them directly and they should tell you.

Also consider the overpayment itself - are you allowed 10% every month or year? Whether you're limited to just one overpayment a year etc.

Watch out for ERCs (early repayment charges) - ask your lender specifically: what would happened if I made £x payments right now, how much would you charge me?

HTH.