Overpayments didn't reduce mortgage length

sinar

Hi

I was wondering if anyone could give me an idea why overpayments I made to my halifax (many years ago) did not decrease the term of my mortgage.

I took out a repayment mortgage with the halifax in 1992, for £12,000 to be repaid over 25 years.

In June 2001 I wanted to make over payments on the mortgage so I could I pay it off early, so I went to see their mortgage advisor who changed my mortgage to daily interest and gave me a paying in book that I took into the halifax to make cash payments to my mortgage. Unfortunately this was quite short lived and I only made 10 payments of £50 between July 2001 and January 2003.

I had actually forgotten about the overpayments i had made but a couple of days ago I found my old paying in book, so I looked at my current mortgage statement (May 2009) and the number of years left to pay is 8 years, which is in keeping with the original 25 year mortgage, so it seems my £500 over payments have not reduced my mortgage term at all.

Unfortunately at the time I was not very financially savvy and never really gave it any thought.

The reason I am concerned now is that I want to start making large overpayments in a couple of months time (when I have paid my credit cards off) to hopefully pay the mortgage in full in about 2 years, and I don't want to pay the extra payments unless I am very sure it is being taken of the capitol and reducing my term.

My current statement says I am on Halifax Variable Rate 2 (HVR002) and as of May 2009 I owe £5078

Thanks for reading,

Julie

molerat

The overpayments probably reduced the capital balance and therefore reduced the normal payment amount at annual review / interest rate changes.

sinar

Thanks for the quick reply, how do I make sure the overpayments I make in the future reduce the term of my mortgage so I can pay it of quicker?

Julie

no1catman

sinar wrote: »

Thanks for the quick reply, how do I make sure the overpayments I make in the future reduce the term of my mortgage so I can pay it of quicker?
Julie

Don't accept any offers, of lower monthly payments as a result of your capital repayments. Decide on your direct debit figure and stick with it.

I'm on a off-set mortgage, pay about £250 a month ( the same as when I started three years ago), I could be on £69 a mth, but I'm sticking.

mintedmatty

This has just happened with us with Santander, we regularly overpay by £250 a month but this month I paid an extra £500 off. We have since received a letter saying they had received the £500 and had adjusted all our future payments accordingly i.e reduced our monthly payment by £5.36 and the term remained the same? It is just a ploy by lenders to maximise the revenue streams. I had to ring them up to change the payments back upto what they were? The chap I spoke to was speechless when I asked him why they did this? There is no other excuse rather than making money but as i undertand it is very common practice by high street banks.

no1catman

mintedmatty wrote: »

This has just happened with us with Santander, we regularly overpay by £250 a month but this month I paid an extra £500 off. We have since received a letter saying they had received the £500 and had adjusted all our future payments accordingly i.e reduced our monthly payment by £5.36 and the term remained the same? It is just a ploy by lenders to maximise the revenue streams. I had to ring them up to change the payments back upto what they were? The chap I spoke to was speechless when I asked him why they did this? There is no other excuse rather than making money but as i undertand it is very common practice by high street banks.

Shouldn't make any difference, what they say - it is up to you what direct bebit you arrange - stick to it. Or do you bank with them as well, should be a dividing line between the 'bank' and the 'mortgage' depts.

mintedmatty

Our bank accounts arent with Santander, those were my exact thoughts Catman but obviously anything a bank can do to make money i guess?

Jonbvn

molerat wrote: »

The overpayments probably reduced the capital balance and therefore reduced the normal payment amount at annual review / interest rate changes.

Overpayments always reduce the capital balance. You can either reduce the monthly payment or reduce the term to take account of this reduction. Most lenders reduce the monthly amount as a default. It is not clear cut which is better for the borrower - it depends on your circumstances.

sinar

Jonbvn wrote: »

Overpayments always reduce the capital balance. You can either reduce the monthly payment or reduce the term to take account of this reduction. Most lenders reduce the monthly amount as a default. It is not clear cut which is better for the borrower - it depends on your circumstances.

I'm a bit annoyed that the halifax reduced my payments as I specifically said I wanted to make overpayments to reduce the term of my mortgage, I wish I had paid more attention to my mortgage statements and realised that is what was happening, I just thought my payments varied because of the variation in interest rates I was paying.

Julie

MORPH3US

Sinar, don't just take our word for it that this is what has happened.. best to ring the bank and double check in case they have made an error.

Bonbon

Jonbvn wrote: »

Overpayments always reduce the capital balance. You can either reduce the monthly payment or reduce the term to take account of this reduction. Most lenders reduce the monthly amount as a default. It is not clear cut which is better for the borrower - it depends on your circumstances.

Also I believe that there is a required minimum overpayment of £500 a time, before they recalculate.I was told this by Nationwide building society. You also need to state which option you want ie. reduced payment or term. I chose to reduce my payments and each month I received a statement telling me what my new monthly payment would be.
Thankfully mortgage free now.