Mortgages on which the interest on the outstanding balance is calculated daily.
Every payment made reduces your mortgage balance the next day. Interest will then be calculated on this reduced balance for the rest of the month which means you pay less in the long run.
Plus points: By overpaying it is possible to save even more money because your balance reduces the next day which means that not only is less interest charged, but the term of your mortgage could be reduced.
E.g. If you take out a repayment mortgage of £60,000 over a 25 year term with an interest rate of 4.00% in the first two years and a rate of 5.00% for the remaining 277 months, paying a little extra could have the following effect:
