Out-of-course mortgage payments as repayments in advance

[misetusame]

Regarding making extra mortgage payments, Brendan Burgess mentioned on another thread (it's not allowing me to insert a URL):

I think it's a good idea to pay it off, but get your lender's agreement in writing that the payment is noted as repayments in advance, so that if you get into difficulty later, you can stop making payments and you will not be regarded as in arrears.

Apart from being able later to count the out-of-course payments later as normal mortgage payments if required, is it identical to paying lump sums against the capital owed on the mortgage?

 

[ClubMan]

Apart from being able later to count the out-of-course payments later as normal mortgage payments if required, is it identical to paying lump sums against the capital owed on the mortgage?

There are different ways that accelerated capital repayments could be handled - e.g.

1. Paid off the capital balance immediately
2. Held on the account but not paid off or offset against the outstanding capital balance and only dipped into if/when you miss a scheduled repayment
3. Offset against the capital for the period that they are lodged but available for withdrawal (offset mortgage http://en.wikipedia.org/wiki/Flexible_mortgage#Offset_mortgages - don't think any lenders here operate these nowadays?)

When making accelerated capital repayments always agree with your lender (ideally in writing) what way they will treat them.

 

[misetusame]

@ClubMan, thank you.

In option (2.) I take it that making a lump-sump payment would not actually reduce the capital owed, and so the interest owed is not in any way reduced, right?

 

[ClubMan]

Yes. Some lenders may do this if you unilaterally make accelerated capital repayments hence my last point above!