A mortgage overpayment is a process that allows a borrower to reduce the outstanding capital by making additional payments outside of the agreed instalment schedule. The technical aspects of overpaying a loan can vary from bank to bank, but the overall process looks similar. Below, I outline the steps to take to technically overpay a loan.

1. Checking the terms of the credit agreement

The first step is to carefully read the terms and conditions of the loan agreement, especially the overpayment provisions. Attention should be paid to:

  • The possibility of making overpayments.
  • Fees for overpayments (some banks may charge a fee for early repayment of part of the loan).
  • The minimum amount of the overpayment, if specified.
  • The impact of the overpayment on the repayment schedule and the amount of instalments.

2. Contact your bank

Next, it is a good idea to contact your bank for details of the overpayment and instructions on exactly how to go about it. This can be done:

  • In person at a bank branch.
  • By telephone.
  • Through online banking or the mobile app.

3. Making an overpayment request

Depending on the bank’s policy, it may be necessary to submit a formal request for an overpayment. This request may include:

  • Borrower’s details.
  • The number of the loan agreement.
  • The amount you intend to overpay.
  • Specifying whether the overpayment is to shorten the term of the loan or reduce the amount of subsequent instalments.

4. Making the transfer

Once your application has been approved by the bank, you will need to transfer the overpayment to the loan account designated by the bank. It is important to specify in the title of the transfer that it is an overpayment of the loan and to include the number of the loan agreement.

5. Confirmation of overpayment

Once an overpayment has been made, the bank should send a confirmation of the execution of the operation. This can be:

  • An electronic confirmation in the online banking system.
  • A traditional letter.
  • A notification in the mobile application.

6. Updating the repayment schedule

Once the overpayment has been realised, the bank should provide a new repayment schedule for the loan, taking into account the reduced capital to be repaid. The new schedule may show:

  • Reduced loan term (if this was your choice).
  • Reduced monthly instalments (if that was the choice).

Technical example of a loan overpayment

Suppose you have a mortgage with a total commitment of PLN 300,000 and your monthly instalment is PLN 2,100. You decide to overpay the loan by PLN 10,000.

  1. You check in the loan agreement that overpayments are allowed without additional charges.
  2. You contact the bank and inform it of your intention to make an overpayment.
  3. You apply for an overpayment through online banking, specifying that you want to shorten the term of the loan.
  4. You make a transfer of PLN 10,000 to your loan account, stating the relevant information in the title of the transfer.
  5. You receive confirmation of the overpayment from the bank.
  6. The bank updates your repayment schedule, shortening the term of the loan, which reduces the total cost of the loan.

Overpaying your mortgage can be a beneficial solution, allowing you to get rid of your obligation faster and reduce your interest costs. However, it is important to read the terms and conditions of the contract carefully and consult with the bank to avoid surprises and additional charges.

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