Overpayment has reduced standard monthly payments!

179 Posts
I have been overpaying my mortgage by £100 pcm for the last year. This year I decided to increase this to £130 pcm, so the mortgage lender wrote to me, confirming this.
In the letter they stated that my standard monthly repayment is now less than my original one (by £30 pcm), which worried me that they had reduced my repayments instead of using them to pay off the loan.
I phoned them and they reassured me that the repayments *will* have reduced my loan, but that the standard repayments have dropped because they recalculated how much I owed when I altered my overpayment amount.
I don't understand these things, but can anyone tell me if this means that I'll be repaying back at a slower rate than before I upped my repayments (It means I can overpay less a month!) Sorry if I'm being thick!
thanks v.much.
In the letter they stated that my standard monthly repayment is now less than my original one (by £30 pcm), which worried me that they had reduced my repayments instead of using them to pay off the loan.
I phoned them and they reassured me that the repayments *will* have reduced my loan, but that the standard repayments have dropped because they recalculated how much I owed when I altered my overpayment amount.
I don't understand these things, but can anyone tell me if this means that I'll be repaying back at a slower rate than before I upped my repayments (It means I can overpay less a month!) Sorry if I'm being thick!
thanks v.much.
If you think you can do a thing or think you can't do a thing, you're right - Henry Ford
0
This discussion has been closed.
Latest MSE News and Guides
Replies
Assuming you have £100k mortgage @ 5%, paying interest only (just for the example). Your monthly repayments will be £416.67, assuming you repay £550 each month you will be reducing your outstanding balance by £133.33 each month. The interest you owe in month two will reduce slightly because you have reduced your o/s balance (slightly). So, based on the slightly reduced balance your interest charge (on £99866.67) would be £416.11 - a reduction of 56p :j
It is not really worth reducing your Direct Debit amount by this much so the lender continues to take the original amount. After 12 motnhs payments your o/s balance has reduced to £98400.04, and lets assume that this coincides with the lenders annual repayment re-calculation then your monthly payment would be reduced to £410.
It depends how your lender takes your payments / overpayments but to answer your question, the reduction of the monthly payment will extend the time to repay your mortgage. So, if you can afford it / want to continue then you need to increase your overpayment slightly. Some lenders do have the facillity to allow your payments to remain set irrespective of the reduction due to overpayments, etc. The other way is to set up a Standing Order from your bank account so you can control how much extra you overpay, i.e. if the mortgage payment reduces slightly increase the SO by a similar amount.
(apologies for the essay)
cloud_dog
Sometimes.... I am like a dog with a bone
1) Reduce the term of the mortgage.
2) Reduce the monthly repayments, keeping the term the same as before.
Request your lender do either 1) or 2) . Read the terms and conditions to avoid overpayment penalties. Monthly repayments are often recalculated annualy or when the BoE changes rates for a tracker mortgage.
Some lenders have monthly limits or annual limits to overpayments. In the later case they may have a specific month when overpayments will count against the capital. The terms and conditions are not all the same for all lenders.
J_B.
Nothing to do but hibernate till spring
Now, every time i do make an overpayment i will make sure that i say that i do not want the payment reduced, and can they make sure that is put in my records. It hasn't been a problem since.
Regards
X
Eat properly
Sleep properly
Save some money
Once the standard payment has reached this lower level, we will then overpay to reduce the term.
Mortgage Free Wannabe 2009 Challenge £1,000 overpayment.
Total Mortgage £90,000 (as at 01/01/09)
Lightbulb Feb 2006
Debt free Nov 2011