Overpayment on mortgage - but interest not coming down????

dazbear

I have interest only mortgage which I over pay every month - while the capital is coming down the interest payments remain the same.

I make two payments - the direct debit ascribed by N-Ram at £750 per month for the interest. I then over-pay an additional sum of £450 by way of a standing order.

When I get a statement it shows the £750 as INTEREST PAYMENTS and then the additional £450s. The AMOUNT OWING is coming down nicely - from the original £185,000 to £169,000 so far. This reduction adds up to the total of my payments of £450.

My issue is that the INTEREST payment has remained exactly the same for the past 2 years, despite the capital coming down. Surely this side should be coming down as I owe less money????

What I would ideally like to do is take the difference and add to my capital reduction payment.

Any ideas?

Thanks

latecomer

I think when we last looked at mortgages there were a few which based the interest on the amount outstanding at the start of the year rather than the current amount which sounds like what you have although the fact that it hasn't reduced over 2 years sounds odd. But then I'm not a financial advisor so I'd check the mortgage docs to see what they say.

dazbear

Its was a standard Northern Rock mortgage transferred to NRAM.

So you are saying that with some mortgages - even if you paid off the capital tomorrow a full 23 years early you would have pay the interest amount for the full term?

Blooming heck - they are charging interest on a loan that doesnt exist?

Surely the main high street banks wouldn't pedal those?

PJD

Have you tried phoning them and asking them to clarify?

dazbear

I have just read this on NRAM's website....

Following receipt of an overpayment, your outstanding balance and the interest charged will be recalculated.
If you pay by Direct Debit and the overpayment is £500 or more your monthly payment will be changed automatically. You have the option to leave your monthly payment unchanged, which will have the effect of setting up a regular overpayment and further reduce your outstanding mortgage balance.

My overpayments are £450. So what is happening to the interest I should be saving then?????

TrickyDicky101

Definitely talk to NRAM - if it is a mistake then they should set your account to rights.

somethingcorporate

I am not sure if it was with NRAM but I do remember reading on here about one person's mortgage whereby the mortgage company held on to the overpayment until you told them whether you want to a) reduce the payment or b) reduce the term. Until you told them they just held it against your balance but you saw no benefit!

It could be the case that this is exactly what is happening with yours so chase it up!

dazbear

When I get back home I will check the calculations and then give them a call

Presumably all this overpaying is reducing the term of the loan???? I presume they will be able to tell me this as well.

Partridge89

Although your payment remains the same, the interest charged by NRAM reduces every month meaning that you are paying the mortgage off more quickly than otherwise (as more of your payment goes toward reducing the balance.) You have two options:

Contact NRAM and ask for the payment to be recalculated, in which case the contractual amount due will reduce.

Leave the payment as is, in which case you will continue to repay the mortgage before the end of the arranged term.

kazd

Add up all your overpayments and then take that away from your original mortgage amount, you will then be able to see if more has come off the capital. also your overpayment is £450, they recalculate your figure if the overpayment is £500 or more.

Overpayments at Nationwide were held as a credit balance and you had to ask for them to be taken from the balance, until the point you could still drawdown on the credit balance.