Mortgage Overpayment Question

nic283

Hi guys, I phoned up my mortgage lender to ask for details on how to make overpayments. I was told that the type of mortgage I have would incur a penalty for any type of overpayment I make. The key facts of my mortgage are below:

10. What happens if you do not want this mortgage any more?
Early Repayment Charges.
An early repayment charge applies if you want to repay the mortgage early. The charge is calculated using a loan amount of £113,099.00 and is based on 4% of the outstanding loan if the mortgage is repaid before 31/03/2011.
In addition, a Mortgage Exit Administration Fee of £199.00 is also payable.
Based on the original amount borrowed, a cash example of the early repayment charge that could apply would be £4,722.96 if repaid before 31/03/2011.
Therefore the maximum charge you could pay would be £4,523.96 plus fees which are currently £199.00.

11. What happens if you want to make overpayments?
If early repayment charges apply to lump sum payments it will be on the basis shown in Section 10 of this illustration. £500 is the minimum amount required and the amount you owe and the interest you pay will be reduced immediately. If you wish to make lump sum payment please make us aware of this at the time. If you make overpayments, then the amount you owe on your mortgage will be reduced immediately. However the amount of interest you pay will not reduce until the end of the mortgage year, which is 31 March.

Does this sound right that I cannot make any additional payments at all without being hit by a penalty?

Thanks for any help!

moominyak

Hi nic283,

Possibly

Who is the mortgage with, is it an 'adverse' mortgage or anything?

I thought most lenders would allow at least some overpaying (but I've only ever had three lenders and never been in a position to OP anything until recently so what do I know! )

evab_2

The early repayment charge should be if you pay off the balance in full in point 10, you need to look at point 11 which says that you can pay £500 as a minimum overpayment but you need to ask them whether that is per month or annually or whatever and if there is any fee attached to this. Best thing is to ring them and ask.

LindsayO

You definitely need to ring them. The info you need is
1. Maximum and minimum overpayment for both lumpsum and monthly overpayments.
2. Charges, if any, incurred for overpaying, for both lumpsum and monthly overpayments.

It may turn out that your best bet would be to put your overpayment money in a savings account until just before the 31st March, so that you earn interest on it, and then pay it to the mortgage company. If this is the case, then you need to find out
3. Their cut off date for getting the overpayment applied by 31st of March.

nic283

Hi there. Thanks for the replies. It's a 100% repayment mortgage with Dunfermline BS. The lady I spoke to said she will pull my file out with the mortgage details and post this to me tonight. Shall wait and see what this says. We had a broker arrange this for us and I'm sure he said we could overpay. I'll be gutted if we can't :mad:

Cheers folks.

nic283

I've now had a chance to check my mortgage offer and read the overpayments section:

Lump Sum Payments
You can make a one off annual lump sum payment of up to 10% of the original loan amount w/out incurring an ERC during the term of the product. This must be for a minimum amount of £500 over and above the monthly mortgage payment and can only be made during the month of Jan. If you repay more than 10% ERC will apply to the excess amount.

Overpayments
If you make OPs then the amount on your mortgage will be reduced immediately. However the amount of interest you will pay will not reduce until the end of the mortgage year, which is 31 Mar.

So... going by this the woman on the phone was talking crap and I can indeed make OPs without penalty (up to 10%). But, I should make a lump sum payment in Jan as any other OPs will not reduce any interest owed. This sound correct?

Welshlassie

Yeap that's the way I work it out as well. Not an ideal situation, but find yourself a good savings account and put all your OP's in there until Jan.