Overpayment Question 30 April 2008 at 5:44PM in Mortgage-free wannabe 5 replies 1K views

Blue76

I have seen some posts on here regarding application of any overpayment to the capital or interest on your mortgage. I have a repayment mortgage and have made overpayments over the last four months although was unaware that I could specify whether these went to pay off the capital or the interest. Can someone please tell me the difference. I have checked my mortgage T &C's and it states payments are applied to interest first. I have also received some letters reducing my payment although contacted Nationwide to say I wanted the term reduced instead.

Thanks in advance

poppyoscar_3

I don't know about interest v capital, but be careful that your lender doesn't charge you each time you overpay to shorten the term - Halifax did charge me, so now I take the lower payment and add the difference to my overpayment!

po xx

JonnyBravo

Blue76 wrote: »

I have seen some posts on here regarding application of any overpayment to the capital or interest on your mortgage. I have a repayment mortgage and have made overpayments over the last four months although was unaware that I could specify whether these went to pay off the capital or the interest. Can someone please tell me the difference. I have checked my mortgage T &C's and it states payments are applied to interest first. I have also received some letters reducing my payment although contacted Nationwide to say I wanted the term reduced instead.

Thanks in advance

Good! Reducing the term and therefore keeping the payments the same is the best in terms of interest paid if you can afford to do it.

[Deleted User]

Blue76 wrote: »

I have seen some posts on here regarding application of any overpayment to the capital or interest on your mortgage. I have a repayment mortgage and have made overpayments over the last four months although was unaware that I could specify whether these went to pay off the capital or the interest. Can someone please tell me the difference. I have checked my mortgage T &C's and it states payments are applied to interest first.

I think that what this means is as follows. I'm sure someone will correct me if I've got this wrong!

If you're on a repayment mortgage, your normal monthly payments go towards paying off the monthly interest first, then the capital. Given that the building society is not going to set a monthly payment that means your loan amount actually increases (unless you specifically ask to make underpayments), this means that you're always paying off a little bit of the capital, even if you make no overpayments at all.

What this means in practice is that any overpayments you make will automatically come off the capital.

I have also received some letters reducing my payment although contacted Nationwide to say I wanted the term reduced instead.

That happened to me once - it turned out to be an administrative error. I'd ring them again and make sure they've flagged your account accordingly.

Jonbvn

Since you have a repayment mortgage, any overpayment automatically comes off the capital i.e. the total amount you owe.

However, when you make an overpayment one of two things can happen:
1. The term of your mortgage reduces. I.e. you continue to make the same standard payments every month over a shorter term.
2. The standard montly payments reduce and the term remains unchanged.

Since you are posting on the MFW board, to be MF quickest, you would opt for option 1.

posh*spice

Hi

I found this thread quite useful

http://forums.moneysavingexpert.com/showthread.html?t=878549

and this one

http://forums.moneysavingexpert.com/showthread.html?t=895459