Understanding mortgage over payments

dwsjarcmcd

I think you should do as Silvercar suggests. If you repay the loan within the 5 year fixed rate term, the ERC's could be £2,000 if, as I think they may, apply to the original balance of £40,000. I'm not sure that there any advantage in resucibg the term from 7 to 5 years. It may even cost you an administration fee.

Leave it as is then repay fully at the end of 5 years.

SilverSix

You can take repayment 'holidays' if you have over paid, as far as I am aware. Pay off as much as you can up to the point where you won't have fully repaid early and then just give the standard repayment for the last few months of the 5 year term. So it'll be costing you as little as possible.

noodle

Have you asked the lender if they will charge you if you pay off the mortgage within the term via 'allowable' payments?

The ERC in this situation would not necessarily be in the 'spirit' of the agreement, but you'd technically be liable to pay... so the first thing to do is to talk to them (and, if they say they won't charge you, get that in writing).

Otherwise, plan out the most effective way to overpay as much as you're able, without causing the mortgage to be fully repaid. This includes understanding how your standard monthly payment will/can change. You don't want to stop your overpayments and then find that the standard payments cover the rest of the balance before the penalty period is up.

B'stard

Thank you all for your replies:beer:

I have sent them a message -

I started a mortgage with you in February 2010. I took out a 5yr fixed rate at 5.38% over a 7yr term.

Each month I have been over paying by the maximum amount, £500. I chose to use these over payments to bring the length of the term down, currently it stands at 4yrs 5months.

I have checked online over payment calculators and these state that I will pay off the mortgage well before the end of the 5yr fixed term. Could you tell me what would happen then, would I have to pay an early repayment charge?

Could I change the terms of the over payments instruction to be instead a smaller mortgage payment, but keep on paying the maximum over payment, £500. To do this when would I have to tell you, month/year, so I do not have to pay an early repayment charge?

Thank you.

B'stard

Dear Mr B'stard,

Thank you for your message.

I confirm as long as the account is not closed and your overpayments remain within the terms and conditions of the product, then no early repayment fee is charged. Therefore, you can continue to make up to £500.00 per month overpayments and the account will remain open until your deal ends, even if you have repaid all the mortgage.


Regards

I would of thought that if you have repaid all the mortgage the account would be closed?

B'stard

In case anyone is interested to know...

Yes you can continue to make overpayments by the maximum allowed. If your account comes to an end prior to the original term through making overpayments you will not be charged any ERC.

If you were to close your mortgage account with one large payment you would be charged an ERC.