Post Office Mortgage overpayment

laura19

Any advice please on what to do.


Applied for mortgage with the Post office. Fixed rate mortage and have the offer(Bank of Ireland). I was hoping to make overpayments on the mortgage along the way to reduce the term of the mortgage but have read this on their webiste.


You can make overpayments at any time during the life of your mortgage. During the promotional period you can repay up to 10% of the mortgage balance each year without incurring any early repayment or administration charges (the mortgage balance is the outstanding balance as at 31st March the previous year). This is subject to a minimum payment of £500. After the promotional period the amount you can overpay is unlimited, however if you pay off your mortgage in full charges may apply.

When making an overpayment you can choose to reduce your monthly payments or to reduce your mortgage term. You can only reduce your mortgage term after the promotional period ends and an administration fee of £60 applies.

I do not want to reduce my monthly payments and it appears I cannot reduce my term until my promotional period ends, so is there any point in overpaying at the moment if I am not able to reduce the mortgage term. Is there any benefit in overpaying or should I just put the money in a cash isa or other saving for the next 3 years and then pay a lump sum.
On the paperwork I have received it says all of the above apart from the second paragraph about choosing to reduce payments or mortgage term
Many thanx

Thrugelmir

Why not save the reduction in overpayments? Then when you've accumalated another £500 make another overpayment and so on.

If the interest you are paying on the mortgage exceeds that ypou can eran in a savings account. Then overpaying the mortgage is the way forward.

laura19

Thank you for your reply, Just to show some figures,
Mortgage payment £507 per month.
Overpayment £500 per month (if I can for first few years when I have no dependants/and no major unexpected bills)
Money in savings account for emergencies
Will this still save me money along the way by overpaying and not reducing the term , I am not quite sure how it works.
I was trying to reduce the term originally so that in 3 years when my fixed rate finishes I would have a larger ltv to get a better deal on a new mortgage.

BoGoF

What's your current mortgage rate?

You might be best saving the overpayments in the highest rate account you can find and then after your current fix has expired pay it off as a lump sum towards your mortgage.

laura19

Current rate is 4.65. fixed for 3 years

dimbo61

If you have emergency savings then overpay by £500 every month and reduce your debt

laura19

Just spoken to Post Office, I definately cannot reduce the term of the mortgage with the overpayments so it looks like I will have to overpay each month and keep paying the amount I have saved with reduced monthly payments back in as I cannot get more interest on savings accounts. Unless anybody knows of any better way?

madeupname1

Your monthly payment will reduce automatically if you make the overpayment. If you plan to make regular overpayments every month, you can just add the difference between the old mortgage payment and the new reduced mortgage payment to your next overpayment. I think it is worth making the overpayment as overall you are saving the interest.

laura19

Thank you all for your replies, I am going to go ahead and make the overpayments with the difference between old and new mortgage payment and save some interest as suggested above.