Capital Repayment vs Overpayment

veloo

What is the difference between a Capital Repayment and an Overpayment?

I have an interest-only mortgage with C&G, and make lumpsum payments occasionally into the mortgage. I have never been charged for making these payments. Recently, I made another payment, and got a letter saying that my recent capital repayment had been applied to my account, and my monthly payment had been reduced. The letter went on to say that
"A non-refundable administration fee of £10 will be added to your mortgage account."
I called C&G to query this, and the lady said that they had changed their rules, and since 1st May are charging £10 administration fee for every capital repayment each time. She also said that if I wanted to make an "Overpayment", then I am not charged this £10. But, my monthly payment does not get reduced either. The overpayment just sits there till I close my mortgage account.

Why would I ever make an "Overpayment" on an interest-only mortgage, if that does not immediately reduce my balance outstanding or my monthly payments. Confused???

What is the difference between a Capital Repayment and an Overpayment?
I spent 10mins with the Call Centre lady, but couldn't understand. She seemed to be reading from somewhere, and every question of mine was getting the same answer. I finally gave up.

I just wonder, if this is a new way to make money of mortgage customers. I used to make multiple payments of varying amounts during the years, and each time my mortgage outstanding was reduced, thereby reducing my monthly interest repayments. I was never charged. Now, if I am going to be charged £10 every time I pay in anything extra.

Thanks in advance!

minimike2

Nothing really.....Generally a capital repayment is seen as a one off additional lum sum, and an overpayment as a smaller, regular amount paid in excess of the contractual payment, but in essncse there isnt much difference.

The only time it really matters is if the mortgage deal only allows additional payments of a minimum of £x (£1000 for example)

It may be that C&G would add your overpayment to the direct debit to allow it to be fee free, but if its paid ad-hoc then they charge the £10 fee

veloo

Thanks, minimike2! In that case, if I made an overpayment, shouldn't that reduce my outstanding mortgage, which should reduce my interest payments?

The lady I spoke to seemed to say that an overpayment just stays in my account. It doesn't reduce my mortgage amount, and it doesn't reduce my monthly payment. It will be used to allow me a payment holiday, if I wanted to ...???

CLAPTON

I would suggest you get a copy of the full T&Cs of your mortgage but it would seem that with an 'overpayment' they don't recalculate the monthly payment (i.e. effectively the period of the loan is reduced) whereas with a 'capital' repayment they recalculate the monthly amount but keep the period fixed and charge you £10 too.

In both cases the actual interest would reduce.

But I am only guessing here.

minimike2

Some overpayments stay on account and reduce the balance at the end of the year, or when you redeem - its classed as a "pre payment".

It depends on the company and when you got the mortgage - Like Clapton says, it will tell you in your Ts & Cs what happens to it.

InMyDreams

CLAPTON wrote: »

I would suggest you get a copy of the full T&Cs of your mortgage but it would seem that with an 'overpayment' they don't recalculate the monthly payment (i.e. effectively the period of the loan is reduced) whereas with a 'capital' repayment they recalculate the monthly amount but keep the period fixed and charge you £10 too.

In both cases the actual interest would reduce.

But I am only guessing here.

The OP is on interest only, so the period of the loan would not be effected at all by any sort of payment (except a full payment). The full amount outstanding (whatever is left) will still be payable on the date you've already agreed.

If it's really just going to sit there 'on account' (giving you no reduction in interest) so that you could take a payment holiday, you might as well let it sit in an interest-earning savings account for the same purpose. Any interest will be better than nothing. (Unless of course, you are then tempted to spend the money.)