Mortgage overpayment question. Capital or interest?

[mat59]

Hello all. Just a quick question. I was someone could help me out.

I'm interested i repaying my mortgage sooner than the arranged period. If I overpay the mortgage does this money come directly off the capital owed or a combination of the interest and capital owed.

E.g - Fictional figures.

If I owe the bank £100k over 20 years and my monthly mortgage payment is £1000, most of this £1000 is actually interest. Say only £200 is actually paid off the capital owed. After one year of paying this £1000 (£200 off the capital each month) per month, I have reduced the capital owed by £2400(£200 x 12 months) which reduces the total amount owed to £97600.

Now if I overpay the mortgage by 20% each month this is £200 extra on the monthly payment. The total monthly repayment is now £1200.

My question is, does the extra £200 come directly off the capital owed, therfore reducing the capital owed after another 12 months of overpaying by £2400? Or does this overpayment of £200 mostly just cover the interest again?

We're trying to save money to move as we need capital for another deposit but this won't be for a few years. Just trying to work out whether to save the money through reducing the capital owed to the bank or to just save it in a bank account.

I realise this is probably a daft question as I presume the overpayment will mostly cover the ineterst. Just wanted to double check.

Cheers

[mat59]

IL_JDM said:

You would be repaying capital.

Overpayments is highly recommended, though check your documents, some mortgages have small print related to this and cap what you can overpay (25% or so)

Yes, it's set at 20%. But paying that over the 22 yrs we have left reduces the term by about 6 yrs (if that makes any sense) and £17k in interest! Will change lenders in the future and try to overpay even more if possible.

Seems too good to be true!