Overpayment Query

Hi,

I need some advice regarding a query we have received from our lender re our over payments,i'll explain everything I can - apologies if it sounds confusing.

My husband and I have a mortgage on our home - there are 2 mortgage products, the second of the 2 mortgage products is what we are overpaying against (or at least trying to!)

I wrote to Skipton Building Society (we were originally with Scarborough until the merger) advising them that we wanted to increase our payment from £926 to £1550 per month with effect from 1st September, Skipton contacted me and asked which of the products the overpayment should be made against and I advised the 2nd product - the larger of the 2 mortgages.

The payment was taken out as arranged on 1st September and all was well - or so I thought. Last week I received a letter from Skipton telling me

"Our records show you have made overpayments during your current overpayment period. The terms and conditions of your account state that an early repayment charge will be incurred if you make overpayments during any overpayment period. Your current overpayment period is due to end on 30th January 2011 and if monthly overpayments continue this will result in a charge being made and you will be advised of this amount 2 weeks before this date."

I contacted Skipton to explain that they must be confused as my mortgage offer states

"There are no overpayment restrictions on this mortgage however, please read section 10 for any early repayment charges that may apply.

If you make an overpayment, interest will be recalculated from the beginning of the month"

The mortgage will not be paid before the tie in period ends.

We are on a 10 year fixed rate taken out February 2006.

Skipton phoned me back today to tell me I was wrong and to refer to aforementionned section 10. Section 10 states

Details of early repayment charges if the loan is repaid, a transfer to an alternative product with us is agreed or capital repayments are made on this mortgage (except normal monthly payments on a repayment mortgage) are summarised below:-

Early repayment charge - 5% of the amount being repaid until 30/01/2012, followed by 4% of the amount being repaid until 30/01/2013, followed by 3% of the amount until 30/01/2014, followed by 2% until 30/01/2015 followed by 1% of the amount until 30/01/2016, after this date no early repayment charge will be payable.

It then goes on to talk about clawback of cashback if mortgage is redeemed early.

From what I can see they are wrong despite them phoning me back, I have asked for someone from the repayment team to contact me on Monday - I genuinely think I am in the right and that I am entitled to make as many overpayments as I like as long as I don't pay it back before my fixed rate ends.

Can anyone offer any advice.

Sorry for the long post.

Replies

  • ThrugelmirThrugelmir Forumite
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    There are no overpayment restrictions on this mortgage however, please read section 10

    Yes, you can make overpayments.
    The mortgage will not be paid before the tie in period ends

    You are unable to repay the mortgage during the 10 period without incurring charges as noted in section 10.
    Early repayment charge - 5% of the amount being repaid until 30/01/2012, followed by 4% of the amount being repaid until 30/01/2013, followed by 3% of the amount until 30/01/2014, followed by 2% until 30/01/2015 followed by 1% of the amount until 30/01/2016, after this date no early repayment charge will be payable.

    If you make overpayments however then the following charges will apply.

    Seems fairly clear.



    When offering a 10 year fixed mortgage. The lender will normally have issued a back to back investment to raise the funds. So will have issued a 10 year bond for example. The lender is under an obligation to pay fixed interest to depositors/investors for the 10 year term.

    Hence the inflexibility of the product. You wanted 10 year certainty of interest rates, but then you can not also have the benefit of short term exit.
  • dimbo61dimbo61 Forumite
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    You have to check with the lender if you are allowed any overpayments or either part of your mortgage!
    Most allow 10% but you need to read the terms and conditions and talk to the mortgage centre.
  • Am I confused then? - I don't want to pay the mortgage off before the end of the fixed rate just want to make over payments so when the term ends in January 2016 so will the mortgage. I thought because I wouldn't be paying the mortgage off before the end of the fixed rate product then I would not need to pay an early repayment charge.
  • ThrugelmirThrugelmir Forumite
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    Your best option would be to accumalate your overpayments into cash ISA's. Search round for fixed term offers with a maturity date / lock in period that tie into the mortgage term. Though with 5/6 years to run until your fixed period expires , then you may need to fix twice.
  • So I can't make overpayments without incurring early repayment charges even though I won't have paid it off before the end of the tie in to the mortgage? - sorry to come across as dim but i'm completely gobsmacked by this,I just don't understand the terminology. Could some one explain to me as simply as possible what it means.

    Thanks for all you help.
  • ThrugelmirThrugelmir Forumite
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    You borrow £10,000 for 10 years at a fixed 6% interest rate.

    Your lender receives a deposit for £10,000. The lender guarantees to pay 4.5% interest to the depositor for 10 years.

    If you overpay your mortgage during the fixed term then the lender will receive less income but is committed to paying the investor.

    Lenders are profit making organisations.

    We all make choices with regards to mortgages, and have to live with the consequences of our decisions.
  • greentgreent Forumite
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    Your terms state you can make overpayments - yes.

    However, each OP will be, in effect, repaying a little bit of the mortgage early. Therefore the early repayment charges will apply.

    They are not stopping you OP'ing, but will 'fine' you a %age if you do so within the fix period - it sort-of slightly offsets the loss in interest.

    Some lenders wsill let you OP a certain maximum amount if you are in a fix before the ERCs kick in. C&G is usually 10% of the January balance.

    Ultimately they are right and you could be charged if you continue OPing.

    Perhaps save the money and OP when fix ends?
    I am the master of my fate; I am the captain of my soul
    Repaid mtge early (orig 11/25) 01/09 £124616 01/11 £89873 01/13 £52546 01/15 £12133 07/15 £NIL
    Net sales 2023: £253.60
  • to me its not clearly stated. i would contact the ombudsman. i have a 10 year fixed with the nationwide and can pay £500 a month and so if you bought this product and were advised overpaying would not be a problem then i think you have been mis informed.
    Mortgage free:beer:

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