Overpayment Question - Surely this cant be right???

Alligator1

I've posted this on the Mortgage board too but thought I might get more replies here. I'm soon to become an offical MFWB!!! I just find out how to work out what my mortgage free date will be !!!

Hi, I want to pay off my mortgage asap so I'm looking for a new tracker or flexible deal with unlimited fee free overpayments.

The idea is that I'm going to overpay as much as possible in order to pay the mortgage off sooner and in doing so pay less interest overall.

I've just used the live webchat with HSBC and I asked if I made overpayments would they go off the capital balance and could the monthly DD stay the same so I could pay it off quicker and with less interest.

The advisor told me that this couldn't happen and any overpayments would have to go off interest and capital???

I questioned this and he said it is cos mortgages are front loaded. He said that overpaying didnt mean I would pay less interest, it would just shorten the term.

The person I was talking to was supposed to have some kind of qualification in mortgages - please, please tell me this is wrong??????

Otherwise, I have been thinkig I can take a mortgage with them, overpay as much as I can and pay it off early saving a load of ££££ and now he is telling me this is not the case!!!!!!!!!!!

Please help.

aliwali

I don't really understand this myself, but surely if you shorten the term then by default you will be paying less interest overall as you will be paying it over less years. They're not going to increase your monthly payment to ensure that they get all the interest over say the full 25 years if that makes sense.

I always assumed that if you made an overpayment with HSBC they recalculated you monthly payment and reduced it. Therefore to shorten the term you would then need to up your overpayment to cover the few pounds that the DD has gone down by.

If anyone has any more info on this I would also like to know as we are planning on making some overpayments from next year.

Thanks
Alison

Alligator1

Thanks, hopefully some brokers or people with mortgages with them will let us know tomorrow!

abouttimetoo

Alligator1 wrote: »

The advisor told me that this couldn't happen and any overpayments would have to go off interest and capital???

I questioned this and he said it is cos mortgages are front loaded. He said that overpaying didnt mean I would pay less interest, it would just shorten the term.
Please help.

Hi
I don't know the full answer but I'm interested in what they said about it being frontloaded. Can you check this by looking at your mortgage statement/getting a balance to see if the amount owing is greater than you borrowed. i.e. if you borrowed £100,000 and the interest over the term is £50,000 from what they are saying your start balance would be £150,000 - does that makes sense?

This does sound odd as if you suddenly came into £100,00 and paid the mortgage off they couldn't charge you the £50,000 interest as you hadn't had the 'benefit' of the loan for the full term.

What type of payment arrangements have you? Have your payments changed at all since you took the mortgage? The only way they could know what the interest is in the first place in order to front load it would be for your mortgage to be at a fixed rate for the full term which whilst not impossible I would guess would be verrry unusual.

I would certainly be looking into this further, can you contact them again to ask how your interest is calculated, daily/monthly etc and how often it is applied - this could be a sense check of what the first person told you; again if you look at your last mortage statment you should be able to see at least the frequency of when the interest is applied.

Frontloading interest on 'normal' loans does happen but fell out of favour over the years so for it to happen on a mortage would really suprise me especailly as as I have said the only way they could calculate the interest woud be for the mortgage to be at a fixed rate for the full term

Good luck and let us know how you get on.

Shambler

Doesn't sound right to me.

If you have paid your monthly payment which includes the interest and capital for that month then there won't be any more interest to be paid that month.

Any overpayment you make therefore will come off the capital alone.

Jonbvn

I think the HSBC adviser made a mistake. If you overpay a capital repayment mortgage it must reduce the capital sum owed. This can have one of two effects:

1. Reduce the term.
2. Reduce the monthly payment amount.

Alligator1

Thanks, that's what I thought.

Alligator1

Hi abouttimetoo. I don't have the mortgage with them, I'm with Birmingham Midhsires at the moment and am considering re-mortgaging with them. I'm not going to until I've sorted this out though!

esthomizzy

Sounds like the person was being thick. When I make an overpayment my bank always asks me whether I wasnt to recalculate the payments or continue the usual payments (shorten the term).

mrcow

I suggest that you get back onto them and get them to confirm this is writing.....which won't happen as he's made a mistake. An HSBC mortgage will not be "frontloaded".

Your overpayments can either reduce your regular monthly payments, or reduce your term......either way, it will reduce your interest. It's just a question of which one you prefer.