HSBC fixed-rate mortgage

unhappy_shopper

We have a 5.55% 5-year fixed rate mortgage with HSBC for a duration of 15 years starting Feb. 2007. HSBC permits overpayment of up to 10% of our monthly repayment amount without any early repayment charge. Beyond that we are charged ERC at the rate of 1% every outstanding year.

Is it possible to reduce the term of the mortgage from 15 years to 10 years, so that the monthly repayment will be larger and therefore we can overpay a bit more without incurring ERC?
Does HSBC allow this reduction in mortgage term?

Thanks in advance to all replies to my queries.

Welshlassie

You're best bet is to just ring them and ask. It won't cost you anything to ask. However, bare in mind that you will be commited to paying that extra so you need to make sure you are in a position to be able to afford it in the long term eg if you end on one salary.

HTH

SuzieSue

I had a five year fixed rate mortage with the Cheshire Building Society and I reduced the term of the mortgage from 20 years to 10 years with no problem. I was also able to increase the term 3 years later when I couldn't keep up with the larger payments. As mentioned below, you need to ring them and ask.

unhappy_shopper

I rang the HSBC mortgage line and was told that I need to shift to another product (sort of remortgage with ERC paid for the outstanding amount and application fees for the new mortgage) if I want to reduce the term. In my case, having done the sums, it does not look like a viable option.

SuzieSue

unhappy_shopper wrote: »

I rang the HSBC mortgage line and was told that I need to shift to another product (sort of remortgage with ERC paid for the outstanding amount and application fees for the new mortgage) if I want to reduce the term. In my case, having done the sums, it does not look like a viable option.

That seems very unreasonable. Does it say in the terms and conditions that you can't reduce the term of the mortgage? I personally wouldn't accept this and I have never heard of anyone not being able to reduce the term of their mortgage. It is possible that lenders have got wise to what people are doing and are trying to stop them, but unless it says you can't change the term in their Ts and Cs then it seems unreasonable. I think MSE should investigate so that people know what the deal is before they take out the mortgage.

JimmyTheWig

unhappy_shopper wrote: »

HSBC permits overpayment of up to 10% of our monthly repayment amount without any early repayment charge.

That strikes me as very low amount you're allowed to overpay. With Abbey, for example, you're allowed to overpay 10% of your outstanding balance in any one year.

unhappy_shopper

JimmyTheWig wrote: »

That strikes me as very low amount you're allowed to overpay. With Abbey, for example, you're allowed to overpay 10% of your outstanding balance in any one year.

Sorry, my error.
20% more of the standard monthly payment without incurring an early repayment charge, which is less than 10% of outstanding balance.

For eg: for monthly repayment of £1100, this works out to be £2640 without ERC. But for 10% case, with outstanding debt of £100K, it is £10K, which is definitely advantageous especially during the initial stages of the loan period.
We overlooked this when evaluating the different mortgage rates.

JimmyTheWig

Sorry, you've still lost me.
20% more than £1100 is £1320 - half of the figure you've quoted.
And how often are you allowed to make overpayments? If it's based on the monthly repayment are you allowed to make monthly overpayments? Or annually? Or is that the limit for the life of the mortgage?

JimmyTheWig

Have just looked it up.

You may increase your standard monthly payment by up to 20% without incurring an early repayment charge

Oh, I see what you've written. That's the maximum you can overpay in a year. Sorry.

Yes, that's not much of an overpayment at all, is it. Harsh.

Do you (and/or your spouse if you have one) pay income tax? If not, it's probably best just to stick the money you've got into a 3 year 5% savings account.
But if you pay tax on savings interest then you're probably best off making the overpayment and taking the hit.

unhappy_shopper

JimmyTheWig wrote: »

But if you pay tax on savings interest then you're probably best off making the overpayment and taking the hit.

That is what we are doing. Paying almost 2.5% ERC for a drastic reduction in mortgage loan. Money idling in % accounts have been moved this way towards loan repayment.

uzubairu

I've always felt that the HSBC's overpayment rules are quite restricting.
Even if you get a good deal, you end up paying more interest because the overpayment option is quite poor.

When we took out our fixed rate loan in 2006, we went with Nationwide in the end because the £500 overpayment limit, the option to reduce the term (as often as we liked-free of charge), and the option to reclaim overpayments quickly were too good to ignore.