Lumpsum towards mortgage

itgirlinuk

Hi,

I am going to get a lumpsum next month and this will be equal to a year's worth of mortgage payments for me. Is it possible to pay a year's payments in lumpsum and ask the bank not to withdraw money through my standing order?

Will I incur anyother charge? I have been told I can overpay as much as I like. But is there any charge for not paying for a year? Any hidden clauses I need to look out for?

Thanks in advance,

amsutt98

Hiya
Im not to sure if you can do what your asking but if you find out you cant then why don't you open a new account put all the money in there set up the direct debit for the mortgage payments to come out of that account and just leave and forget about it for the year, just a suggestion if its not possable to pay it in one lump sum (thats what i do) also if you really get stuck and need the money quickly what ever is left in the account can be drawn out.

TangentMan

All depends on your lender and the type of mortgage you have.

In general most "modern" mortgages allow overpayments or part redemptions. Some will have limits (i.e. if you overpay by more than 10% per year you incur an Early Repayment charge).

All of this should be in your offer document, but if you don't have the answer, phone the lender and ask them.

As an aside, banks don't take motney through standing orders. The standing order pushes money out of your account. You might really mean a direct debit. But if you do have a standing order setup and you do get the green light to overpay for a year, you will have to stop the standing order yourself or it will keep pushing money out of your account!

lilyann1

I have heard of lenders letting you defer payments for up to 6 months but never longer than that.Call them and speak to them.
Might be best to pay off half and then defer payments for 6 months and then have the other half of the inheritance in a different account and set up the direct debit from this account later.

jamesd

itgirlinuk, there are some ways this might be done and you'lll need to ask your lender which they could do.

1. Advance payments. They may be able to treat the payments as adance payment of your normal monthly payments. This is of lowest benefit to you and should be avoided if the other method is available. It's unlikely to save you much interest since the payments may not be applied to your capital owed.

2. Lumpsum payment off capital followed by 12 month repayment holiday. This is of greatest benefit to you because the money comes off the balance you're paying interest on at the start, then your balance gradually increases as you skip each payment.

3. A mixture of 1 and 2, for example if they only allow a 6 month repayment holiday.

4. Switching to interest only payments for the year and making those lower payments, likely to be 70% or so of the normal payments. Possibly combined with one of the other methods.

Don't just pay the money to the mortgage and stop paying. You'll need to discuss with the lender so you and they know what will happen and how the money should be applied.

mleonard79

Hi Lilyann,

It's all completely dependent on what type of mortgage you have and what the terms and condtions are that apply to it. Some mortgages only allow you pay in a certain amount in one year, some calculate interest annually so there are better times to pay in the money than others, some only allow overpayments at certain times of the year, some will allow you to defer payments and make overpayments and some will not. So basically you have to have a good look at your mortgage and see what it says. I genuinely don't think any lender will defer payments for an entire year but you can always ask.

If you simply want to use this money so you don't have to pay your mortgage for a year then amsutt98's suggestion is a really good one. Simply put the money in a savings account if possible (or a current account with a good rate of interest) and then set it up so your mortgage payments are taken from that account.

itgirlinuk

I know that I am allowed overpayments of any amount and not restricted in anyway. What I was not sure of was about the payment holiday period and if there were any catches? And if there will be negative impact on my credit score, if I take a payment holiday.

itgirlinuk

I have just called the bank and checked. They allow only 6 months payment holiday and they said that I can pay the lumpsum and then take a payment holiday for 6 months. They will reinstate the direct debit at the end of 6 months and the first month payment might be slightly higher, as I would still incur some interest on the account, as I have not made any payments.

Has anybody done this before? Any other ideas for me?