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  • FIRST POST
    • saiyen2002
    • By saiyen2002 12th Jul 18, 11:18 AM
    • 2Posts
    • 0Thanks
    saiyen2002
    over payment on mortagage reduces monthly interest rate?
    • #1
    • 12th Jul 18, 11:18 AM
    over payment on mortagage reduces monthly interest rate? 12th Jul 18 at 11:18 AM
    I recently renewed my mortgage and decided instead of reducing my term I would overpay my mortgage every month. Since this would give me flexibility should i feel a squeeze on my finances. I got myself a 3yr fixed 1.65% from barclays.

    I have been reading mortgage document and have seen the following 2 paragraphs about over payment which seem contradictory to me.

    We will not reduce the mortgage balance on which interest is charged immediately where we receive an
    overpayment to your mortgage. Interest is charged on a yearly basis; therefore you will not receive the benefit
    of making an overpayment to your mortgage until the Mortgage Year End or at the same time that any lump
    sum repayment is made to your mortgage, if earlier


    What i gather form this is if I overpay my mortgage, the next months payments split between principle and interest repayment will stay the same? is that correct? even though the principle has reduced?
    This is paragraph is immediately followed by the following

    Following receipt of a lump sum repayment, we will immediately reduce the mortgage balance on which
    interest is charged and recalculate the amount that you owe and the amount that you pay. This means that you
    will get the benefit straight away.


    here i understand that making a payment reduces the interest rate straight away. I am confused here.
    what is the difference between overpayment, and lump sum repayment?
Page 1
    • sal_III
    • By sal_III 12th Jul 18, 12:05 PM
    • 316 Posts
    • 291 Thanks
    sal_III
    • #2
    • 12th Jul 18, 12:05 PM
    • #2
    • 12th Jul 18, 12:05 PM
    First of all you are mixing up "interest" and "interest rate". The former is a sum based on calculations, the latter is the % that is fixed in your mortgage term (i.e. 1.65%).

    I believe the meaning of the first quote is regarding to small monthly over-payments like instead of 1000/month you pay 1100/month for example. In this case the recalculation of the remaining principal happens on yearly basis, instead of having to do ti each month, which makes sense.

    The second quote handles lump sum over-payments, like for instance paying 10k at one point, while keeping your monthly payments as per the schedule. In this case the remaining principal will be recalculated immediately and your future monthly payments will be reduced accordingly.
    • TrickyDicky101
    • By TrickyDicky101 12th Jul 18, 12:21 PM
    • 3,060 Posts
    • 1,985 Thanks
    TrickyDicky101
    • #3
    • 12th Jul 18, 12:21 PM
    • #3
    • 12th Jul 18, 12:21 PM
    Are there any definitions anywhere in your mortgage agreement describing what is meant by a lump sum overpayment?
    • getmore4less
    • By getmore4less 12th Jul 18, 12:50 PM
    • 32,408 Posts
    • 19,472 Thanks
    getmore4less
    • #4
    • 12th Jul 18, 12:50 PM
    • #4
    • 12th Jul 18, 12:50 PM
    Are you sure you are on annual interest?

    You really want a daily interest mortgage where all payments by you are credited to the mortgage account immediately.
    • saiyen2002
    • By saiyen2002 17th Jul 18, 1:59 PM
    • 2 Posts
    • 0 Thanks
    saiyen2002
    • #5
    • 17th Jul 18, 1:59 PM
    • #5
    • 17th Jul 18, 1:59 PM
    thanks, i think it makes sense now
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