Mortgage overpayments - Monthly or Lump sum?

9
Found 20th Jul 2016
Morning HUKD.
I am planning on making a small overpayment of £2500 on my mortgage, but was really confused when I checked Martin Lewis website for advice. As I understand, his article suggests that rather than making a lump sum £2500 overpayment once, increase your monthly recurring overpayment by £200 (which my bank allows) and if I continue to do so, the Mortgage term will reduce to almost half (in my case)

Can someone kindly share any experiences, so I can make a decision? Of course, I can visit a Mortgage advisor, but would like to ask here before I do that as the community on HUKD can be very smart.
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9 Comments
I thank you in advance for your help.
Hi Jay,
I believe it depends if you would like to "reclaim" the over payment at a later date.
If you make a lump sum payment you should be given the option to recalculate your payments or the term. but the balance is then recalculated on the lower balance.
But
If you overpay monthly the overpayment is used to reduce the interest and should be showing as a credit on your account, so you may have the option to miss your regular monthly payments and use this credit as your monthly payment instead.
Your best bet is to call your mortgage providers helpline, this should be a fairly simple question for them to answer.
paul1005

Hi Jay, I believe it depends if you would like to "reclaim" the over … Hi Jay, I believe it depends if you would like to "reclaim" the over payment at a later date.If you make a lump sum payment you should be given the option to recalculate your payments or the term. but the balance is then recalculated on the lower balance.ButIf you overpay monthly the overpayment is used to reduce the interest and should be showing as a credit on your account, so you may have the option to miss your regular monthly payments and use this credit as your monthly payment instead.Your best bet is to call your mortgage providers helpline, this should be a fairly simple question for them to answer.


Thank you Paul. Much appreciate your clear and crisp response.
in overall terms you will save more paying it all as a lump sum as the balance will be reduced earlier hence less interest
o0bean0o0head0o

in overall terms you will save more paying it all as a lump sum as the … in overall terms you will save more paying it all as a lump sum as the balance will be reduced earlier hence less interest



That is what confused me initially.
After speaking to the Mortgage provider (and now I feel really stupid asking this question) the lump sum and monthly overpayment are not calculated over the same term (Lump sum calculated over 1 year and monthly overpayment for the whole term of the mortgage) hence the massive difference.
ah but then you will be paying more than the lump sum against the balance so it's not comparable. btw I'm a finance analyst for a loan company
o0bean0o0head0o

ah but then you will be paying more than the lump sum against the balance … ah but then you will be paying more than the lump sum against the balance so it's not comparable. btw I'm a finance analyst for a loan company


Agree. Realised that after I posted the query. (_;)
Ok so is it better to pay a lump sum or monthly payments
saji

Ok so is it better to pay a lump sum or monthly payments


Depends on the terms of your mortgage. Most places allow a 10% overpayment without incurring any fees, where as most places charge a fee for lump sums.
Iirc it's generally best to over pay up to the fee limit then put anything else you have spare into a saving account/isa then when your fixed term is up make the lump payment during the remortgage process that way you don't pay any fees.
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