If you've got a mortgage where interest is calculated once a year, you could save hundreds of pounds by overpaying in the next few weeks.
This is because many lenders do their sums on 31 December. So if you overpay on your mortgage before this date, you can cut its cost (see our Mortgage Overpayment Calculator and Remortgage Guide).
The lower your outstanding loan amount on the day, the less interest you will be charged for the following year.
If you've got a £150,000 mortgage, with 20 years remaining and at 4% interest – for example – you would save £730 a year by overpaying £10,000 now, if you're 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. But tens of thousands of borrowers who have not switched in years will still be on annual interest deals.
When is the calculation date?
The table below shows the date major lenders do their sums for annual interest mortgages.
Lenders' annual interest year-ends
|Barclays/Woolwich||30 September or 31 December (i)|
|Bank of Ireland||31 March|
|Bath BS||31 December|
|Leeds BS||31 December|
|National Counties BS||31 December|
|Nottingham BS||31 December|
|(i) Depending on the brand and when you took out the mortgage.|
I want to overpay. What should I do?
If you have the cash, it is usually best to overpay before the calculation date, brokers say. Just make sure you leave enough working days for the money to reach your mortgage account.
Before overpaying, check you're not still in an introductory fixed or discount period. If you are, overpaying by too much can trigger a charge – 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: "This will mainly affect people that have been with a lender for a long time. In the main now, lenders calculate interest on a daily basis.
"If you have the money to overpay, then now is definitely a good time to consider it, but you need to make sure there are no penalties."
Some lenders will allow you to recalculate your interest payments at any time in the year, but with two key conditions.
Firstly, you need to explicitly state any overpayment is to reduce the size of the loan. Secondly, there is usually a minimum overpayment amount, often £500.
But when annual sums are done, it's only the balance on that day that matters.