What does capitalise mean?

Hi Everyone,

I was enquiring with my mortgage provider about reducing my mortgage through overpayments. They replied with the following:

Yes you can overpay, we only capitalise amounts over €1,000.00 and each capitalisation requires a specific instruction,
You would need to change you standing order, there is no penalty we reduce your instalment not your term

I have no idea what that means. What does capitalise mean? I don't have any background in finance and am not familiar with such terms.

Thank you in advance.

They use the temr capitalization to mean a payment off the capital of the mortgage.

That means that they accept payments off the capital , but only if the amount is over €1000. You must send them the money with written instructions that they are to use this money to reduce the capital on the mortgage. Note that they say that this will not reduce the term of the mortgage, but rather, they will reduce the monthly repayment necessary.

Interesting. Which bank is it?

Interest is charged on the net balance, so whether it is capitalised or not, doesn't matter that much.

If they don't capitalise it, it is presumably treated as "repayments in advance"

Brendan

Thank you both.

Brendan - It is actually Fingal County Council (affordable housing scheme).

So does this mean there is no benefit in repaying in advance regarding interest?

Does it also mean you have to overpay a minimum of 1000?

I was hoping to do something like add 200-300e to my monthly mortgage, is this not permissable then?

cat123 said:

Thank you both.


So does this mean there is no benefit in repaying in advance regarding interest?

Does it also mean you have to overpay a minimum of 1000?

I was hoping to do something like add 200-300e to my monthly mortgage, is this not permissable then?

Click to expand...

Yes, you can't repay smaller amounts than 1000.

You could save 200/300 a month and make a capital payment twice a year.

It will reduce the amount of interest that you pay, over time.

Thanks very much, that's a lot clearer now.

Banks calculate interest on the closing balance every day, so paying money early reduces the interest charge.

I have no idea if the Affordable Housing loans do this or not. And there really is no way to find out for sure.

As huskerdo says, save up €1,000 and pay it off.

Brendan

Thanks Brendan.