Overpayment conundrums

Chillysauce · 20 March 2018 at 1:30PM

So posting here in the hope of some advice. I have read the guide regarding the overpayments tho the queries I have arent covered unfortunately

Now please note no debt aside from mortgage and 6 months of net salary saved with addition OMG fund if the boiler etc. where to go. As per the guide on the site.

Now I was paying a student loan off which I have since done so I transferred that figure into an overpayment on my mortgage. Whilst buying the house had budgeted for the student loan.

So I save additional funds saved at the end of each month.

There are 3 options open to me as I see it after speaking to my mortgage provider RBS.

Put the money into the mortgage immediately. Note this does not shorten term of the mortgage or alter the repayments. I was told this just increases my capital.
I save up a couple of months make a payment of over £1000.00 I can ask for a recalculation of repayments.
I save up a couple of months make a payment of over £2000.00 The recalculation happens automatically.

Note I am on a fixed term for 2 years which is up in October 2019. Being fully aware interest rate will not stay this low, I am keen to increase the capital and reduce the borrowing.

I am unsure as to which of the above options I should take. Thanks for advice in advance

greent · 20 March 2018 at 1:48PM

I'd personally go for option 1 - int will (I guess) be calculated on daily balance, so the sooner you get money in, the sooner your daily interest charged will be smaller and the more of your monthly payment will be going to capital repayment.

You can always ask for a recalc of your monthly payments anyway, once you have made some smaller repayments - especially once they've totalled over the 1k (really can't see why this would be a problem - it wasn't a problem 20+ years ago, and banking systems are much improved since then!

)

Kittenkirst · 20 March 2018 at 2:44PM

I AGRee with GreenT- if you can pay earlier in smaller amounts I would always choose that so the interest is reducing quicker

beanielou · 20 March 2018 at 6:51PM

Not all mortgages do decrease interest other than once a year or if you make a capital repayment.
So I would make a capital repayment.
Just my thoughts.

greent · 20 March 2018 at 9:12PM

The vast majority of RBS mtge loans now have interest calculated daily. A small percentage do still have (historic?) annual int calculations

Chillysauce · 21 March 2018 at 2:16PM

[FONT=&quot]So upon digging this is not clear and RBS contradict themselves:-

From RBS site I have the link saved.
[/FONT]
[FONT=&quot]How do overpayments affect my mortgage? [/FONT]
[FONT=&quot]If you have spare funds that you'd like to put towards your mortgage, then overpayments can be a great way to do this.[/FONT]

[FONT=&quot]Overpayments help to reduce the balance of your mortgage, in addition to your normal monthly payments. As they help to reduce the balance, you will therefore pay less interest. This is how overpayments can help to save you money.[/FONT]

[FONT=&quot]It's important to note that overpayments do not reduce the term of your mortgage. This can only be done if you contact us to make an application.[/FONT]

[FONT=&quot]Overpayments greater than or equal to £1,000 in a one off lump sum will automatically re-calculate your normal monthly payments to a lower figure.[/FONT]

[FONT=&quot]Overpayments which are less than £1,000 will not affect the amount of your normal monthly payment, even where you make a number of overpayments that are each less than £1,000 but together add up to more than £1,000.[/FONT]

[FONT=&quot]Now paragraph 1 is contradicted by paragraph 4. So unless you make a payment of over one thousand pound you aren't saving yourself any money. Or I am I misreading that.[/FONT][FONT=&quot] I agree the point made regarding the comment in the thread of the daily rate. But then when do they recalculate.[/FONT]

[Deleted User] · 21 March 2018 at 2:27PM

Chillysauce wrote: »

[FONT=&quot]. So unless you make a payment of over one thousand pound you aren't saving yourself any money. Or I am I misreading that.

Yes, you are mis reading that.

You will pay less interest as the balance is lower. It just means that the monthly payments are not reduced.

Paras 1 and 4 are complementary, rather than contradictory.

Chillysauce · 21 March 2018 at 2:48PM

ZX

So then what about the non reduction of the term. This in tandem with the two previous would mean the overpayment are pointless.

IMHO it is poorly worded and unclear.

helibob · 21 March 2018 at 3:01PM

It will effectively reduce the term, but they won't recalculate it until you remortgage (at which point you can probably choose whether to reduce the term or the monthly payment). If it would cause you to pay off your mortgage within the term of your fix, you may need to speak to your bank.

greent · 21 March 2018 at 3:26PM

The term of my mortgage never officially reduced - if I'd wanted my repayments recalculated in the last few months of its life it would have shown that the required monthly amount was £8 something - which was all I would have needed to pay per month to repay it by the end date. Therefore my payments of £1K+ per month had reduced the effective term (as in I repaid it several years early) and had saved myself £000s in interest in doing so

greent · 21 March 2018 at 3:29PM

My personal mtge was with Lloyds/ C&G, as is my BTL mtge. Both only recalculate(d) payments automatically if an OP of £1K+ was made. However, I like having the smaller OPs to my BTL, as the 'extra' in my standard monthly payment is also effectively an OP (which increases by pence each month - very much working on the 'every little helps' theory here!

)

Overpayment conundrums

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