Mortgage Overpayments Daily Interest Question

[lidds]

Hi all my daughter has a repayment mortgage £117000,24.5 years left 4.04% for 4.5 years ,then SVR currently at 5.99% for remaining 20 years.The interest is charged daily.
She wants to overpay about £60 a month.
The question I have is,would it be better to overpay £2 a day or £60 at the beginning of the month?
I can't seem to find a calculator for daily interest but I think the £60 would save more.
Any other work arounds to cut time down?
Thanks

[Rob_125]

Why would she ever want to overpay by £2 a day?!


But yes, overpaying by £60/month at the start of the month will save her a marginal amount more (will be rather insignificant). The real savings will be made from the overpayment toting up over the duration of the mortgage.

(In my unqualified opinion)

[Sarnie]

lidds said:

Hi all my daughter has a repayment mortgage £117000,24.5 years left 4.04% for 4.5 years ,then SVR currently at 5.99% for remaining 20 years.The interest is charged daily.
She wants to overpay about £60 a month.
The question I have is,would it be better to overpay £2 a day or £60 at the beginning of the month?
I can't seem to find a calculator for daily interest but I think the £60 would save more.
Any other work arounds to cut time down?
Thanks

It wouldn't make hardly any difference whichever she did.......

[markiii]

surely the overpayments will come out as part of teh regular payment, just increase it?

[paolow]

As said it wont make an appreciable dent doing it that way which can be demoralising - but consider opening an ISA and making the payments to that instead. Pick a passive fund with a very low fee to keep it and you will get to enjoy watching the money build into something. Then in 4.5 years you have the option to tip it into the mortgage and knock a chunk off - or maybe priorities might have changed and the few thousand might be just whats needed?

yes - the value of investments can fall as well as rise etc...

[onetwothreefour]

Check with the mortgage provider whether this is what they do, but at least Nationwide in the past have done this:

- every time a payment is made, count the number of days since the last payment (D)
- multiply this by the interest rate R
- divide by 365

- add the result to the balance and deduct the new payment.

The problem with this is that if you're making very frequent small payments on a large balance, the extra addition to the balance (and the interest which then accrues on that) can reduce the effect of the overpayment.

In short, this means that you should align overpayments with your regular monthly payment, or at least make them as close together as possible. Try it on a spreadsheet if you want to see the effects!

[paulrockliffe]

paolow said:

As said it wont make an appreciable dent doing it that way which can be demoralising - but consider opening an ISA and making the payments to that instead. Pick a passive fund with a very low fee to keep it and you will get to enjoy watching the money build into something. Then in 4.5 years you have the option to tip it into the mortgage and knock a chunk off - or maybe priorities might have changed and the few thousand might be just whats needed?

yes - the value of investments can fall as well as rise etc...

She's guaranteed 4% return on the overpayment. At £60 a month, it's not worth risking only getting 1% for the small chance she might get 6%.

Chances of getting 4% in the Market over the next 4 years feel pretty low to me.

[lidds]

Thanks for the replies,maybe the investment elsewhere will be better,strange times at the minute.

[paolow]

paulrockliffe said:

She's guaranteed 4% return on the overpayment. At £60 a month, it's not worth risking only getting 1% for the small chance she might get 6%.

Chances of getting 4% in the Market over the next 4 years feel pretty low to me.

Oh I absolutely understand the maths - I think the key is that it would be demoralising paying that much and knocking a few quid a year off the repayments at the end of the year. You'd think 'why bother?'. at least paying into a fund would quickly see tens turn into hundreds and thousands in time. the extra benefit is that 'its there' if you need. Not saying its a perfect solution - but rather an option.

[Caddyshack]

I would say paying it off the mortgage is a great idea, it is cost and risk free. It is a great habit to get in to and when she feels ready she can increase the payments. If you pay off £60 this month then you won’t pay interest on that 60 next month…eventually she will notice a small reduction in payments, if her payments have dropped by £5 pm the. She can add that £5 to the overpayments….and so it continues.


I started overpayments years ago and before I knew it I was over £1100pm in overpayments.

[Caddyshack]

60pm is 3.5 yrs less on that mortgage and saves £10k in interest. If she builds that to 300pm over time then it will soon knock off 10 yrs.

[DaveCWK]

If there are savings accounts available with guaranteed interest rates that match the mortgage interest, what's the advantage of overpaying the mortgage over just putting the spare money in one of those then re-assessing your overall position come remortgage time in a few years?

[Terzo123]

Caddyshack said:

60pm is 3.5 yrs less on that mortgage and saves £10k in interest. If she builds that to 300pm over time then it will soon knock off 10 yrs.

If correct that is not insignificant and as has been mentioned, in time she may be able to increase the overpayment reducing the mortgage even further.

[bmwmike]

Not sure why people suggest putting the money into a savings account (even at the same rate of interest as the mortgage) or even worse, investments, when the best return she'll get (assuming she has savings elsewhere for rainy day etc) is the mortgage itself, especially as she won't pay interest on that £60 the following month, nor any month for the duration of the mortgage.

[Sarnie]

Sarnie said:

lidds said:

Hi all my daughter has a repayment mortgage £117000,24.5 years left 4.04% for 4.5 years ,then SVR currently at 5.99% for remaining 20 years.The interest is charged daily.
She wants to overpay about £60 a month.
The question I have is,would it be better to overpay £2 a day or £60 at the beginning of the month?
I can't seem to find a calculator for daily interest but I think the £60 would save more.
Any other work arounds to cut time down?
Thanks

It wouldn't make hardly any difference whichever she did.......

To clarify my post above, I didn't mean that overpaying the £60pm wouldn't hardly make any difference, I meant it wouldn't make hardly any difference whether she overpaid £2 per day or £60 at the end of each month......

[Deesee]

292 months to approx 250 months..

(assuming interest rate stays at current)..

Most lenders will have 'daily' interest but it is applied as a debit monthly on or around the same day as the dd goes in as a credit to the ledger.

Your daughter is effectively repaying additional capital beyond the repayment/yield curve, say save 9k in int.

Age/Kids perhaps will all come into the coming 250 months, Id be tempted to add to savings TBH.

[OutInTheShed]

Being naturally contrary, I'd suggest investing the £60 a month for the next few years at least.
Having a rainy day fund is far more valuable than just the numbers.

I'm all in favour of repaying mortgages early, but you have to balance that with pensions and other savings.
If you concentrate on say repaying your mortgage by 50, it's easy to arrive at 50 with no other savings.

Inflation should make it easier to make bigger overpayments in 5 or 10 years time.

Obviously it would be sensible to consider the whole picture of careers, partners, family etc.

[Caddyshack]

Sarnie said:

Sarnie said:

lidds said:

Hi all my daughter has a repayment mortgage £117000,24.5 years left 4.04% for 4.5 years ,then SVR currently at 5.99% for remaining 20 years.The interest is charged daily.
She wants to overpay about £60 a month.
The question I have is,would it be better to overpay £2 a day or £60 at the beginning of the month?
I can't seem to find a calculator for daily interest but I think the £60 would save more.
Any other work arounds to cut time down?
Thanks

It wouldn't make hardly any difference whichever she did.......

To clarify my post above, I didn't mean that overpaying the £60pm wouldn't hardly make any difference, I meant it wouldn't make hardly any difference whether she overpaid £2 per day or £60 at the end of each month......

Yes, I did think that is what you meant…not that it wasn’t worth doing at all.

[Caddyshack]

Terzo123 said:

Caddyshack said:

60pm is 3.5 yrs less on that mortgage and saves £10k in interest. If she builds that to 300pm over time then it will soon knock off 10 yrs.

If correct that is not insignificant and as has been mentioned, in time she may be able to increase the overpayment reducing the mortgage even further.

It is correct, I used a mortgage calc to do it. Sarnie and I are both mortgage brokers.