Overpayments

Smaths · 12 March 2018 at 5:30PM

Hi, new to this so be kind :-)

I am in the final stages of getting a mortgage. On the official document "Offer of advance" What happens if you make overpayments? says:

"You can repay all or part of the loan at anytime before hte end of the term in accordance with the mortgage conditions. If you make an overpayment(as defined in the mortgage conditions) of, or a series of overpayments that amount to, less than £5000 unless we agree otherwise we will not apply this to reduce your loan balance but it will reduce the amount of interest you have to pay straight away. If we do agree to reduce your loan balance you may have to pay an early repayment charge and an administration fee and we may change the anount of your monthly payment. If you make an overpayment, or a series of overpayments that amount to, £5000 or more we will use this to reduce your loan balance and this will reduce the amount of interest you have to pay straight away, you may have to pay an early repayment charge and an administration fee, We will also change the amount of your monthly payment unless we agree otherwise. If you make an overpayment we will not refund the overpayment to you unless it is greater than your loan balance in which case we will refund any difference to you."

I am having great difficulty understanding what this means exactly, so is my mortgage adviser even after having a long conversation with the provider.

Ultimately my aim is to build up as much equity as I can afford by making overpayments for when my 2 year fixed rate ends.
Originally I was told I can make overpayments of up to 10% of the loan balance each year, but the above condition seems to negate the benefits of making overpayments(I very much doubt I will be paying over the £5000 per year).

I would be very grateful if someone can explain what this means to me in plain English.

Thanks in advance

Blackbeard_of_Perranporth · 12 March 2018 at 6:03PM

Any overpayments you make will go to reduce the capital on your mortgage and hence, reduce the interest payment made. This is good, but you will not get any benefit from this should you fall ill or other unforeseen circumstances affect your ability to pay the mortgage.

Myself I am still six years since my cardiac event around 6 months in arrears, in agreement. It is not my intent to catch up, though I have stash of cash under my duvet to pay them the arranged amount should I require further treatment. I have had a few breaks in the last six years!

You can take from that what you want!

Smaths · 12 March 2018 at 9:50PM

HI, Thank you for your reply.
What do you mean by 'capital'? how does this relate to me reducing my balance and/or coming of the interest?
I have made over payments on a previous mortgage and thought I understood it well. But the way they worded it on this mortgage has confused me.
They are saying if i make overpayments of less than £5000 and they have not agreed otherwise they will reduce the amount of interest I have to pay straight away but it will not reduce my balance, this seems to imply that I would not benefit if, say, in two years time I remortgage with someone else.
I'm having trouble understanding the practical difference between them reducing my loan balance and them reducing the interest I have to pay straight away.

daisy_1571 · 13 March 2018 at 8:34AM

Smaths, I have read this about 5 times now slowly and carefully. I like to think I am fairly au fait with legalese but this has me stumped. I can't see what they are doing with your overpayment that will not reduce the 'balance' but will somehow reduce your interest.

I see what blackbeard is saying but the text does not mention capital and if that's what they mean by balance then it still doesn't make sense that they say monies under 5000 will NOT repay balance but will reduce interest then they say monies over 5000 WILL reduce balance and interest. I don't see how your interest can go down if you are not repaying some of the capital meaning an overall reduced balance.

If it was my mortgage I would be making an appointment with the provider and ask them to explain it. Take notes (and note who you are speaking with in case they get it wrong). Good luck and update us if you get a clearer answer.

Daisy

bexster1975 · 13 March 2018 at 9:08AM

Smaths

As others have said, if this is a direct quote from the mortgage companies paperwork this is confusing. I imagine the idea is that the TERM won't reduce if you pay up to £5000. You will however pay interest on a lower balance, so less interest straight away. You are correct that many mortgage companies allow up to 10% paid per year without ERCs etc. I agree an appointment for clarrification is needed here.

Good luck

Bexster

Smaths · 15 March 2018 at 7:49AM

Thank you very much for your replies Daisy and Bexster. Its strangely comforting to know no one else understands it either :-)

I will be contacting the provider and hoping they can elucidate..

:-)

Overpayments

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