Overpayment Question

22 Posts
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
Thanks in advance
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po xx
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.
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.
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.
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.
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