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Northern Rock Borrow Back Confusion
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mleonard79
Posts: 1,616 Forumite

My mum has a flexible Northern Rock Mortgage with the Borrow Back facility. She made an overpayment of £7.5K just over a year ago and, although she had the option to lower her monthly payment at that time, she left it at the same amount it has always been so as to maximise the saving.
Now she wants to take £3.5K of the money back out of the mortgage but she has been told her monthly payment will increase by £44 per month!! I'm utterly baffled as to how it could possibly increase at all since she has been paying the same amount as she paid prior to the overpayment and that was the amount necessary to pay this mortgage off in full without any overpayments. Surely by overpaying all she did was save herself some interest and, as such, the payment necessary even if she took the whole £7.5K back should probably be slightly lower than her original payment not £44 higher especially when she's not even taking half of the overpayment back??!
Northern Rock said it was due to her having just under 3 years left on the mortgage, the way interest is calculated and the fact the money was paid into the repayment part of the mortgage but I just can't understand it. The mortgage is part-repayment and part interest only but I still don't think that should make any difference considering she continued to pay the amount that would have been necessary to pay off the repayment part of the mortgage if she hadn't made any overpayments. I thought perhaps they had been putting the extra each month into the interest only part which would have caused a deficit in the repayment part if she takes money out but after looking at a statement it is clear that the full overpayment went in the repayment part and the full monthly payment has also been getting paid into the repayment part.
If anyone can shed any light on the maths here or if I'm missing something I'd be grateful for the help. Thanks.
Now she wants to take £3.5K of the money back out of the mortgage but she has been told her monthly payment will increase by £44 per month!! I'm utterly baffled as to how it could possibly increase at all since she has been paying the same amount as she paid prior to the overpayment and that was the amount necessary to pay this mortgage off in full without any overpayments. Surely by overpaying all she did was save herself some interest and, as such, the payment necessary even if she took the whole £7.5K back should probably be slightly lower than her original payment not £44 higher especially when she's not even taking half of the overpayment back??!
Northern Rock said it was due to her having just under 3 years left on the mortgage, the way interest is calculated and the fact the money was paid into the repayment part of the mortgage but I just can't understand it. The mortgage is part-repayment and part interest only but I still don't think that should make any difference considering she continued to pay the amount that would have been necessary to pay off the repayment part of the mortgage if she hadn't made any overpayments. I thought perhaps they had been putting the extra each month into the interest only part which would have caused a deficit in the repayment part if she takes money out but after looking at a statement it is clear that the full overpayment went in the repayment part and the full monthly payment has also been getting paid into the repayment part.
If anyone can shed any light on the maths here or if I'm missing something I'd be grateful for the help. Thanks.
:hello: :hello: :hello:
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Comments
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As she kept the payment the same, she reduced the term. Now, with that reduced term, the additional £3.5K borrowing increases the monthly cost.
Maybe she could ask for the term to be extended but there may be a cost for the administration. Generally, lenders like you to stick to the original agreement IMHO.
GGThere are 10 types of people in this world. Those who understand binary and those that don't.0 -
Gorgeous_George wrote: »As she kept the payment the same, she reduced the term. Now, with that reduced term, the additional £3.5K borrowing increases the monthly cost.
Maybe she could ask for the term to be extended but there may be a cost for the administration. Generally, lenders like you to stick to the original agreement IMHO.
GG
Hi GG,
Thanks for your reply. I'm not sure what you mean though as it is a fixed term mortgage lasting 7 years and the term has never been reduced. It ends in Aug 2013 and was always scheduled to end then. Thanks for the help.
Regards
M:hello: :hello: :hello:0 -
mleonard79 wrote: »Hi GG,
Thanks for your reply. I'm not sure what you mean though as it is a fixed term mortgage lasting 7 years and the term has never been reduced. It ends in Aug 2013 and was always scheduled to end then. Thanks for the help.
Regards
MHi, we’ve had to remove your signature. If you’re not sure why please read the forum rules or email the forum team if you’re still unsure - MSE ForumTeam0 -
When you overpay but continue with the original payment amount, the time taken to repay the mortgage is reduced, though the term is not formally reduced (previous post suggesting this are inaccurate - NR cannot do this without telling you.) The interest charged is reduced when you overpay, so it increases when funds are borrowed back - the reason for this increase is because of the short remaining term.0
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Thanks for all the replies but it turns out this has just been a case of miscommunication. The term has not been reduced and the payment will not rise at all - on the contrary she could bring it down if she wanted to. She has now spoken again to NR and the confusion has been cleared up - the first advisor she spoke to hadn't been clear enough when telling her that her payment would rise by £44. Basically the £44 payment increase is an increase to her "contractual" payment which is essentially the minimum payment she is required to make and not what she has actually been paying. As she carried on paying the full amount her contractual payment is nearly £200 lower than her actual payment and therefore this £44 increase is understandable and really a moot point as it won't affect what she pays at all.
I'm glad it was something so simple as I was totally baffled!
Thanks again.:hello: :hello: :hello:0
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