"Every month, the interest hits the capital balance that's outstanding on your mortgage, and it calculates in that mortgage repayment how much is interest, and how much is capital. "The start of your mortgage, obviously, is where you're going to have the largest capital balance outstanding - and if you can reduce that amount, you've the interest hitting that lower capital balance, so it means more of your payment is going to capital than interest."
"They would repay €1,796 per month - but say they have that extra €200 available that they could bring their overall mortgage repayment up to about €2,000 per month," says Hennessy. "By overpaying €200 per month, they'd save five years on their mortgage, so they'd drop their term from 30 years right down to 25 years and they'd save €44,736 in interest."
Overpaying a mortgage means paying more than the contracted monthly repayment. Most mortgages operate on an annuity basis, where each payment covers interest and capital. Reducing the outstanding capital lowers the interest charged each month, increasing the proportion of each payment that goes to capital. Small regular overpayments can meaningfully shorten the loan term and reduce total interest costs. For example, on a €400,000 mortgage over 30 years at about 3.5%, adding €200 monthly to a €1,796 repayment can cut the term by five years and save roughly €44,736 in interest. Lenders are also expanding access, including lending to older borrowers.
Read at Irish Independent
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