Mortgage overpayment – will it come off capital ?

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  • Mortgage overpayment – will it come off capital ?
  • jfletch
    Member

    Yes it will.

    Premier Icon ononeorange
    Subscriber

    Well your lender doesn’t just give it away to anyone they see, so clearly it must……surely you have read your agreement?? That will contain the terms under which it does, eg how quickly interest is recalculated, the maximum you can repay etc which is really the key as to how much it makes sense…..

    jekkyl
    Member

    Yes. Your monthly payment covers the interest for that month so any overpayment reduces the balance. Most mtg providers are daily interest too.

    Premier Icon ratherbeintobago
    Subscriber

    Yes, it comes off the capital. For a repayment mortgage, part of the payment is for the interest, part is captial repayment. As the interest payment is more or less fixed, if you overpay, you increase the capital repayment.

    This means one of two things; either you will have paid back the capital earlier (so the mortgage term is shorter) or your repayments go down (because there is less owed to charge interest on). Either way, given that savings interest is so crap at the moment, there’s a school of thought that this is a better thing to do than putting money aside.

    Premier Icon totalshell
    Subscriber

    we had our mortgage with nationwidce.. straight forward repayment thing.. we overpaid every month.. its your mortgage you can pay it down how you like.. we paid it down so the repayments got lower then switched so the term became shorter till we’d paid it off..

    spooky_b329
    Member

    its your mortgage you can pay it down how you like

    Unless of course you have a overpayment limit which isn’t unusual if you are still in a fixed term deal. Nationwide was £500 limit for overpayments each month.

    Also check how your interested is calculated. Most interest is done daily (in which case pay off whenever you have the cash….you reap the benefit immeadiately)

    Other accounts calculate it annually, in which case keep the money in your account, and take it off the mortgage just before they calculate the interest.

    peasant
    Member

    I have been paying a small amount extra off each month and it is not clear if it come,s off the capital sum ? anyone know ?

    Premier Icon Kryton57
    Subscriber

    What spooky said. Mine has a £500 limit. They will accept it, store it but it will earn nothing until it exceeds £500 and gets paid off.

    For this reason I stick my extras in an ISA until the £500 is reached.

    avdave2
    Member

    Either way, given that savings interest is so crap at the moment, there’s a school of thought that this is a better thing to do than putting money aside.

    My mortgage is with Nationwide and the interest rate is lower than on some of their savings accounts. I am overpaying but I could actually make a little more money by only paying the interest and saving the rest. However the figures are pretty small and I just like the feeling that it’s going to be paid of early.

    To the OP you better check, it might be your over payments have been allocated to “The Impoverished Banker’s Bonus Fund.” You did read the small print didn’t you?

    Premier Icon njee20
    Subscriber

    What spooky said. Mine has a £500 limit. They will accept it, store it but it will earn nothing until it exceeds £500 and gets paid off.

    Is that what he said? I know with Nationwide if you pay off more than £500 extra in a month you’re charged. You can pay of less than £500 above your standard repayment as much as you want. Sounds like the exact opposite to what you’re saying.

    What spooky said. Mine has a £500 limit. They will accept it, store it but it will earn nothing until it exceeds £500 and gets paid off.

    This is either wrong for the Nationwide or I am mistaken.

    Premier Icon piedi di formaggio
    Subscriber

    With the Nationwide (I’m with them on a fixed rate, so this is what my doco says – check yours) you can overpay up to £500 per month without incurring any additional charges.

    Pay over that and you get charged the early repayment fees

    DT78
    Member

    We’re with nationwide, pretty certain we don’t have a limit on overpayments…better dig that paperwork out!

    Moneysavingexpert has a useful article about overpaying and whether it is a good idea or not.

    Technically we would earn a tiny amount more using our isa allowances, but we are paying down the mortgage primarily as I want to reduce the LTV in case we need to remortgage or move. At the moment each £500 is knocking about 2 months off the term which adds up pretty quick.

    DrRSwank
    Member

    With Nationwide, as with most lenders, there is a limit on overpayment WHILE you are within a deal – so a two year fixed rate deal for instance.

    Once you’re out of deal you can overpay by any amount.

    It does come straight off your capital. Which if you’re early in your mortgage is very beneficial. You will need to tell your lender whether overpayments are intended to lower future payments or reduce the term.

    As said above, this is financially quite sensible at the moment given savings interest rates.

    Premier Icon ononeorange
    Subscriber

    The over-riding requirement for us when we took out the mortgage as our job circumstances were uncertain at the time was a fixed rate mortgage where we had the right to overpay as much as we liked (apart from down to zero). We were happy to pay a higher headline rate to get that and it has proven to be a great saving as Mrs O managed to get a job (we had sized the mrotage term on what I could just about afford each month). That flexibility has been worth so much more than a slightly higher rate to us.

    dooosuk
    Member

    From memory, my mortgages have always been able to overpay by 10%.

    You just need to check your terms, but yes it’ll come off the capital as you’ve already paid that months interest.

    mudshark
    Member

    Offset mortgages are great for this sort of thing – can make sense for those with irregular incomes though other options generally have lower costs.

    anjs
    Member

    I currently have a tracker with the Woolich. Its rate is .2% above the BOE base rate. I have been over paying for the last 5 years so hopefully will clear the mortgage a lot quicker.

    Premier Icon Kryton57
    Subscriber

    njee20 – Member
    What spooky said. Mine has a £500 limit. They will accept it, store it but it will earn nothing until it exceeds £500 and gets paid off.
    Is that what he said? I know with Nationwide if you pay off more than £500 extra in a month you’re charged. You can pay of less than £500 above your standard repayment as much as you want. Sounds like the exact opposite to what you’re saying.

    My Mortgage isn’t with the nationwide. I was talking about the terms of my own mortgage which is minimum £500 payment per month with no monthly maximum, only a 10% annual loan value limit, or full repayment with 6months internet as penalty.

    So in other words I save some cash in an account which ears paltry 3% interest (something is better than nothing) until it gets to £500 then pay it off the mortgage.

    avdave2
    Member

    I’m with the Nationwide but took the mortgage out with the Portman and my terms and conditions are as they were, therefore far more flexible than if I’d taken a mortgage with the Nationwide.

Viewing 21 posts - 1 through 21 (of 21 total)

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