Mortgage overpayment or capital repayment

mabeline95

hello

please can somebody help.

I have a fixed mortgage, I am able to make overpayments of 10% of the outstanding balance per year.

I have been advised I can make capital repayments of £500 per more or monthly overpayments to reduce the term.

If I was able to make £500 overpayments each month, can anyone advise if I am better making capital repayments each month or overpay each month.

I am so confused in the 2 differences

many thanks

cheeks

Ive been wondering the same thing, I'll be interested in the replies.

maveli

I too was trying to find an answer to this last year and found that it depends on so many factors like interest calculated daily/monthly, interest rate of mortgage etc

Also some of the lenders will allow you to make the 10% capital repayment only in the month of January. So in that case overpaying/month is better.

KiKi

I'm not an expert, but as I understand it, in principle:

Capital repayments will reduce the amount you pay per month over the term of your mortgage (ie, after your fixed period, you will pay less per month over 25 years than had you not made the capital repayments).

Overpayments will reduce the term of the mortgage, but the amount you pay each month does not reduce (ie, adter your fixed period, you will pay the same per month over a shorter period of time than had you not made the overpayments).

There is no real financial benefit of either - I overpay and offset with the Abbey, and it worked out as something like £10 difference if I made capital repayments instead.

It does, of course, depend on the T&Cs of your mortgage, how interest is calculated and how your lender allows you to make the payments, but I believe the above in principle is correct.

I am more than happy to be corrected if this is wrong, but this was the answer I had when I enquired about 8 months ago!

HTH

KiKi