Overpayments didn't reduce mortgage length

sinar

MORPH3US wrote: »

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.

Thanks, I will do that just to make sure, I'm thinking that I won't make overpayments now, instead I'll open a savings account and save until I have enough money to pay the mortgage off in one lump sum, as I want to be 100% sure it gets paid off.

no1catman

sinar wrote: »

Thanks, I will do that just to make sure, I'm thinking that I won't make overpayments now, instead I'll open a savings account and save until I have enough money to pay the mortgage off in one lump sum, as I want to be 100% sure it gets paid off.

Snag with that is how low interest rates are on this possible 'savings account' (and even then you pay tax on it), another option is to inquire if you could convert it to a off-set mortgage (depending on the admin fee it may be worth it).

MORPH3US

sinar wrote: »

Thanks, I will do that just to make sure, I'm thinking that I won't make overpayments now, instead I'll open a savings account and save until I have enough money to pay the mortgage off in one lump sum, as I want to be 100% sure it gets paid off.

Don't let this one bad experience put you off making overpayments, just make sure you let them know that you want to shorten the term with your overpayments in future.

When deciding whether to make overpayments or save it, just compare the interest rates you would get to see which is better to do.

(take into account tax on savings as mentioned above - unless you are saving in an ISA)

mintedmatty

Agree with Morph3us, Overpaying can save you a fortune over time! with saving rates being so poor at the moment it certainly worth considering overpaying as much as you can! i took my mortgage out in 2005 £55,000 over 25 years fixed for 5 years at 5.49%. Ive overpaid pretty much for the length of my fixed deal shortening my term by 7 years. In July my deal ends and i go onto base rate + .5% and my payments should reduce to £230. I plan to continue paying roughly £500 and all being well should rates stay relatively steady I should have paid my mortgage off by October 2017. 13 years early saving me around £37,000 in interest. Obviously the base rates will fluctuate but I can afford to up my payments if interest rates increase.

getmore4less

Not sure what the issue is.

It makes no difference in the end.

The total amount of money available is the same so the mortgage gets paid of at the same time whichever way you do it.

You overpay as much as you can.

If you pay a smaller normal mortgage the overpayment will get bigger.

beecher2

I always phone the Halifax and tell them to put a note on the system that I'm making a capital repayment before going into the branch with a cheque. They ask if I want the term cut or the amount I repay cut. I don't know if it is necessary to do this but when I made overpayments in the past I was told they were just sitting in my account and hadn't been taken off the capital (don't know if this is true as I was told different things by different people).

sinar

MORPH3US wrote: »

Don't let this one bad experience put you off making overpayments, just make sure you let them know that you want to shorten the term with your overpayments in future.

When deciding whether to make overpayments or save it, just compare the interest rates you would get to see which is better to do.

(take into account tax on savings as mentioned above - unless you are saving in an ISA)

Hi,

I have just opened up an ISA and will be putting my savings in there, I understand that the interest I will get from my savings will be lower than the interest I will be paying on my mortgage, so it is not the most financially sensible choice to make, but I think I will get more incentive seeing my savings grow, than I will do making overpayments that I won't be see bringing my mortgage capital down.

Another option I've been considering is getting a credit card with a super balance transfer facility for the full amount of the mortgage, and paying the mortgage of in full, leaving around £4500 on a credit card, with 0% APR for 12 months (probably with a 3% fee), I could probably afford to pay £400 a month off so would be able to pay it off within the 12 months interest free period. It would mean living very frugally for another year though, but I'm used to it as I've been paying off a lot of credit card debt over the last 3 years.

Julie

Snoozle

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.

I hate banks as much as the next person, but I feel I have to defend them in this case........

Deep breath......I used to work in the mortgage department of a bank and in the absence of instructions to the contrary, we always reduced the monthly payments and kept the term the same. There was a very simple reason for this - the mortgage offer, which was legally binding, and which the customer had signed (under advice from their solicitor) stated the term on the front. Therefore, if the term was 25 years, and someone made an overpayment of X amount, we couldn't just change the term to 21 years or whatever, because that is not what the customer signed up for in the first place. Can you imagine the outrage if banks just changed people's mortgage terms without them agreeing to it? They would be torn to shreds.

If a customer specified that they wanted their payment to remain the same, in order to reduce the term then we followed their instruction, but this was in the form of an ongoing voluntary overpayment, not a formal change to the term of the mortgage; without knowing the future fluctuations in interest rate, it is only possible to estimate the remaining term anyway, its not possible to say that an overpayment of £10k equals X years off your mortgage. Voluntarily overpaying was actually the better option for customers anyway - it had the same effect, in that it cleared the mortgage quicker, but if money became tight, it was always possible to drop the repayments to what you should have been paying anyway.

Ok, I've got that off my chest. I must stress again, I am not an apologist for banks, having worked in one for many years (thankfully, no more!) I think they are probably even more immoral and corrupt than the general public know, but on this one matter I feel that I had to defend them.

ALIBOBSY

Before making overpayments its always worth checking with your provider as to how they apply the OP and in fact if it is allowed without penalty.

Mine confirmed the amount I could pay each month without penalty and at what level they would be triggered to adjust the DD.

ali x

mintedmatty

Snoozle wrote: »

I hate banks as much as the next person, but I feel I have to defend them in this case........

Deep breath......I used to work in the mortgage department of a bank and in the absence of instructions to the contrary, we always reduced the monthly payments and kept the term the same. There was a very simple reason for this - the mortgage offer, which was legally binding, and which the customer had signed (under advice from their solicitor) stated the term on the front. Therefore, if the term was 25 years, and someone made an overpayment of X amount, we couldn't just change the term to 21 years or whatever, because that is not what the customer signed up for in the first place. Can you imagine the outrage if banks just changed people's mortgage terms without them agreeing to it? They would be torn to shreds.

If a customer specified that they wanted their payment to remain the same, in order to reduce the term then we followed their instruction, but this was in the form of an ongoing voluntary overpayment, not a formal change to the term of the mortgage; without knowing the future fluctuations in interest rate, it is only possible to estimate the remaining term anyway, its not possible to say that an overpayment of £10k equals X years off your mortgage. Voluntarily overpaying was actually the better option for customers anyway - it had the same effect, in that it cleared the mortgage quicker, but if money became tight, it was always possible to drop the repayments to what you should have been paying anyway.

Ok, I've got that off my chest. I must stress again, I am not an apologist for banks, having worked in one for many years (thankfully, no more!) I think they are probably even more immoral and corrupt than the general public know, but on this one matter I feel that I had to defend them.

Contractually, legally you are probably in the right? but seriously who would ever complain about having their mortgage paid off earlier? Even if their mortgage papers stated 25 years I cant picture anyone kicking up a stink???? Then again having worked in the banking industry I do see your point about having to do it that way? Would be pretty easy to put it in the KFI and other documents what will happen if you overpay?