Q I took a five-year fixed-rate mortgage last summer and was lucky enough to just miss the rising interest rates. I’m looking ahead, as things could still be tricky in five years, and so I plan to overpay as much as I can. Does it make a difference how I overpay? Would it benefit me more to make a monthly payment or a larger lump sum at the end of each year?
RH
A If you had said “larger lump sum at the start of each year”, I’d have said lump sum every time. But if the choice is between chipping away at your outstanding mortgage by making monthly overpayments – which reduces the amount of interest you pay – and waiting until the end of the year to bring down your mortgage balance, I would say monthly overpayments would be more beneficial. But both answers assume that you don’t incur penalty charges by overpaying too much.
