First Direct Overpayment Calcs. Help!

MasterP

Hi,

I was on the phone to First Direct earlier, applying for a mortgage (base rate tracker, capital repayment).

I was initially planning to get the mortgage over 10 years, but she said that if I wanted, then I could get mortgage over a longer term and just overpay as required. This sounded like a good idea, as it was more flexible, so I went for a 15 year term instead.

Here some some example figures. Rather than:
Term: 10 Years
Monthly Payment: £1000
Overpayment: £0

I decided to go for
Term: 15 Years
Monthly Payment: £700
Overpayment: £300
(assuming that if I do this every month, I still pay off the mortage in 10 years)

However, it has just struck me that it may not work this way - I think that she said "when you overpay, we don't recalculate your monthly payment - it remains the same". I may have misunderstood, but surely this means that I'd still be paying interest on the bit of capital that I paid off with my overpayment? The knock-on effect would be that it would take longer than 10 years to pay off, even if I were paying £1000 per month (as £700 basic + £300 overpayment).

Can anyone shed some light on this please? One way or another, I've misunderstood something

Thanks

P

bumpybecky

in the absence of someone who really know what they're talking about, I'll wade in....

I think the way it works is that they calculate the amount of interest owing daily. If you pay extra you'll owe less interest as you've paid off a bit more from the capital. They take the same monthly payment, but as you don't owe quite so much in interest, the extra bit of your monthly repyament comes off the capital as well as the overpayment itself.

I'm quite happy to be corrected though....

WestonDave

First Direct don't tend to run repayment mortgages as such - they are all effectively interest only. So where another bank would automatically (and irritatingly) change your monthly payment downwards after each overpayment (because they tend to assume you want to lower payments not shorten the mortgage - maybe it suits them that way!), First Direct payments are on a standing order that you have to calculate, set up and change as you like. Provided you pay off the interest each month, they don't normally get interested in how much you have repaid.

As above they calculate interest on the daily balance so your assumption at the outset was correct - where you've confused it a bit is confusing them not recalculating the repayment figure, with them not changing the interest amount. If you do as you say, it should end after 10 years) They will incidentally always calculate you a repayment figure if you phone and ask, its just that they tend to assume their customers have half a brain and so they don't screw up things you've done!

MasterP

That makes sense. Thanks for the help - much appreciated!

sebtomato

WestonDave wrote: »

First Direct don't tend to run repayment mortgages as such

I don't think this is correct. Most of their tracker mortgages are repayment mortgages. Only their offset or normal tracker with the lowest LTV (65%) can be taken as interest only or repayment (they give the option).

loracan1

I've asked a question in a similar vein after checking my balance with Britannia yesterday. My payments have stayed the same over the last 12months although I've overpaid. Checking their website further it says that you can ask for a recalculation when you overpay by £500 lump sum. From what I understand, although the figures don't change, interest is charged daily and the amount borrowed is dropping. (I many not be explaining this very well!)

Fiddlestick

loracan1 wrote: »

From what I understand, although the figures don't change, interest is charged daily and the amount borrowed is dropping. (I many not be explaining this very well!)

I believe that unless you ask them to recalculate, you pay the same amount each month and as you steadily over pay, more of your monthly repayment will go towards capital rather than interest.

Happy_Shrimper

Didn't appriciate that FD take payments in the form of a standing order that you have to set up - novel!
I've done exactly the same as the original poster; remortgage from current provider - aiming to pay back in 6-7 years. planned to ask for a 10 year mortgage, but after chewing over the details and running some figures through mortgage calculators, I asked for 20 years. The flexiblity offered by FD is quite amazing. Just need a lot of self disapline not to borrow back, or make lower payments than intended.