How mortgage overpayments this month can save £100s

Jamie Stinson
MSE News Reporter
7 December 2012

Borrowers with mortgages where the interest is calculated once a year could save hundreds of pounds by overpaying in the next few weeks.

Many lenders do their sums on 31 December, so if you overpay on your mortgage before this date you can reduce the cost.

The lower your outstanding loan amount on the day, the less interest you will be charged for the following year (see our Mortgage Overpayment Calculator).

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A borrower with a £150,000 mortgage, with twenty years remaining, at 4% interest, would save £730 a year by overpaying £10,000, if lucky enough to have that amount.

These deals are often called annual interest mortgages. They are relatively rare, because most new home loans now operate on daily interest.

However, tens of thousands of thousands of borrowers who have not switched in years are on annual interest. NatWest, for example, still has 45,000 such mortgages on its books.

When is the calculation date?

The table below shows the date the major lenders that still have annual interest mortgage on their books do their sums.

Lenders' annual interest year-ends
Lender Calculation date
Barclays/Woolwich 30 Sept or 31 Dec
Bank of Ireland 31 March
Bath BS 31 December
Halifax 31 December
Leeds BS 31 December
National Counties BS 31 December
Nationwide BS 31 December
NatWest 31 December
Nottingham BS 31 December
Santander 31 December

If you are making an overpayment make sure you leave enough working days for the money to reach your mortgage account.

What should you do?

If you have the cash, it is usually best to overpay before the calculation date, brokers say.

Overpaying by too much can trigger a charge if you're still in an introductory fixed or discount period – usually when you overpay by more than 10% – though on older mortgages there is usually no restriction, making this less of an issue on annual interest deals.

David Hollingworth, from broker London and Country, says: "If you are thinking of overpaying, now would be a good time.

"Always check with your lender that it does recalculate. And check you will not be penalised by an early repayment charge."

Some lenders will allow you to recalculate your interest at any time in the year but with two key conditions.

Firstly, you need to explicitly state the payment is to reduce the size of the loan. Secondly, there is usually a minimum overpayment amount, usually £500.

But when annual sums are done, it's only the balance on that day that matters.

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