Overpaying on mortgage

jethrothe2nd

I have a variable rate mortgage with BOI and am thinking about overpaying. How exactly would this work? Does the overpayment simply come off the principal, or is it more complicated than that? Also, can I overpay some months and not others?

phormium

The overpayment comes off the balance, the balance is an overall balance made up of capital and interest. Interest is added on each month, payment comes off each month so balance goes up and down and reduces gradually. Depends on B of I's set up on mortgages but you probably can pay extra whenever you want, it's only if you officially want to reduce your term that you will have to commit to paying the extra.

Liam D Ferguson

On a variable rate mortgage, you can make regular overpayments every month, you can make occasional lump sums or you can do both. Make sure that you it clear to the bank that you want your overpayments to come immediately off the capital of the loan. I've heard of situations where the bank misunderstood and thought that the customer was simply saving up towards a future payment holiday.

In theory you can make overpayments some months and not others but in practice as it's a Direct Debit payment you're better off leaving it at a set amount each month.

Here's a good online calculator that can show you what effect your overpayments can have.

ted1

Also check to see when the intrests in calculated if only annually keep it in a savings accout and lodge it the day before. No point giving them free money

killers1

Interest is calculated daily on the balance outstanding and applied to the mortgage on a monthly basis.. By making overpayments you are reducing the balance on which the interest is calculated...

NIMAN

I've made the odd overpayment.

It comes off the overall amount you owe, plus you have the option of either keeping your repayments at the current amount and reducing your term, or else keeping your term at the current no of years and reducing your monthly repayment accordingly.