Mortgage Overpayments - How do they work?

Originally Posted by bluninja

When I worked as a mortagge advisor we had a little table that showed people that if they made the equivalent of 13 monthly payments in a year it would reduce a 25 year mortgage down to 18 and a bit and knock about £35,000 off repayment of a £150,000 mortgage.

A lot depends on the type of mortgage and how/when they calculate interest.

wow, didnt realise the effect was that much!

[starts counting big jar full of change]

[pookie]

make sure its not an overpayment so you can take a payment holiday..almost got caught out with my overpayments. Had to tell them to make sure it was off the capital.

The wife has spoken to them and apparently it goes into a pot or something which means that you can take a break if required.

That is not what I want though because I am not a great saver (actually I'm crap - I just don't) so this way would mean anything left rather than being spunked on something for the bike or running stuff, would actually be going off of the mortgage.

not sure if its been mentioned as only read the op, but imo over pay over pay over pay while its cheap...BUT...be aware and check u dont get charged for overpayment....if we overpay by more than £500 a month we get a charge,.....

[pookie]

yes they are sly like that and will use the excuse not to reduce your interest payments, whilst keeping the money for payment holidays. So not only do you pay the same amount of interest but they keep the overpayment amount for the whole year. One other consideration that I found was I couldnt take the overpayment back out which I could with another mortgage provider. This means your money is locked in so if you can for go all your savings against the mortgage is ok.

So what questions should I be asking if I put in another call to them then?

1, can i overpay?

2, will you charge me to overpay?

3, if i am a bit short in the future and want to borrow back my over payments....will you charge me for this and how much?

4, am I entitled to payment holidays still if i overpay now.

they would be my questions mainly.

Originally Posted by cartwrim

I guess all mortgage providers T's & C's are different but with ours we can make overpayments up to 10% of the mortgage total each year, but it has to be a minimum of £2k per time, you can't just do an extra bit each month.

As Luckypants said, definitely worth doing if you can afford it as it will save you £thousands in the long run

Yeah, they will all be different. Ours allows £5,000 per year before incurring a penalty.

[dizzyblonde]

I'm going to get myself into gear and have a word with the bank about this one. Mines gone down by 120 quids, so I can afford to put a little more in. I'm pretty sure they said I could when i took it out. Didn''t realise you could take so much off by doing it either

[Balky001]

I'm on tracker at .49 above base and an extra £100 a months saves me about £5500 in interest over the 20 years I borrowed (obviously if rates go up I save more interest making overpayment but that's only because I'm paying more in the first place!). BUt the capital you pay off now will actually be worth more in relative terms when interest rate finally go back up as the amount you owe is less. It should also reduce the amount of time you pay the loan back. It is so worth it as long as you don't struggle or borrow to get by.

I don't have redemption penalties (nor should you on SVR) but some lenders do insist on a minimum or only allow a cetain % to be paid in addition.