Random mortgage question

[justchecking1]

Can anyone help?

Say my mortgage payments are £1100 per month, fixed for 5 years on a 12 year mortgage.

I then pay the 10% overpayment on the balance that I'm allowed to make per year, at the end of year 1.

Now my monthly payments for year 2-5 are only £950 per month.

Is the £150 I'm now not paying per month meaning I'm paying less interest (so the same overall amount is coming off the capital each year as would be coming off if I hadn't overpaid) or am I paying back less capital and the same interest?

@Abertropper Whilst your example would be permissible, it's not as simple as that. The lender is reducing the overall balance, not just knocking off what she's paid from next month's payment!

So this is how it works - when you early repay £2000 on your mortgage, that amount goes directly toward your principal / capital. Once your outstanding amount is reduced by £2000 the interest is recalculated and distributed over you fixed term. So the £150 reduction in your case is interest saved.

If you have not used up your early repayment amount fir the year then your term can be reduced. However the reduction would need to stay such that the amount you pay during this time always remains within your early repayment amount.

In other words since you used up your 10% allowance banks won't allow you to reduce the term as this means you will be repaying even more than the 10% if they do.

Despite all this you've saved £150Xremaining months of fixed term interest. Well done.

It's definitely still worth doing. Your outstanding mortgage balance is 10% lower so you will pay interest on a smaller amount of borrowing.

If you were paying interest on a mortgage of a 100k, you would now only be paying interest on 90k.

Overpaying is always worth doing.

[quote Hayeahnobut]@Abertropper Whilst your example would be permissible, it's not as simple as that. The lender is reducing the overall balance, not just knocking off what she's paid from next month's payment![/quote]
I understand that... clearly not explaining myself well but I think op has got the idea anyway!

Overpayments over a certain would automatically reduce your monthly payment. So if you make an overpayment and your payment reduces you pay less interest, and keep paying the same amount off the capital. So the term remains the same.

Some mortgage lenders will let you keep the monthly payment the same, so for example if your minimum payment went to £950 but you chose to keep the monthly payment at £1100 you would be making a monthly overpayment of £150. This would mean that you would pay off the mortgage before the term ends.

Also the monthly payment is not technically fixed, again it depends on the mortgage lenders terms. It is the interest that is fixed, you can often chose to overpay on your monthly payments as long as you pay the minimum monthly payment.

You will pay them less overall by making the extra payment.
Assume the interest rate isnt going to change at the end of the fixed rate.
If you'd paid 1100 per month for 12 years, you would pay them 158400.
If you make no further additional payments other than the o e you've just made, you will pay 12 months at 1100, 10% of the balance, which I'm estimating at 7,500, plus 11 years at 950. Total repayable 146100.

Actually, the overpayment will have been more than 7500, because I was thinking of a 25yr mortgage.
But if the overpayment was less than 20k, you've saved money.

Brilliant, thank you all for your help

Do look too at when you can overpay. We took our mortgage out late in the year, knowing that we would be receiving some more money, we were able to over pay some back when it came in and then more back on 1 January.