Mortgage overpayments

rowly731

Hi everyone

We recently started a new mortgage (25 years but 10 year fix @ 4.99% on £99k) which allows overpayments of 10% of balance each year. Our monthly payment is approx £570. When we applied we asked for clarification that overpayments could reduce our term rather than our monthly fee and were told that this would not be a problem. I setup a regular payment of £680 (£570 + £110 overpayment) and asked that this decreases our term rather than our monthly fee but was told that the only way to do this would be to change our actual term officially and move to an offset mortgage.

We hope we can maintain our overpayment butwould like the option of cancelling it if needed so would rather stay at on our current deal. We wanted to overpay to decrease our term after using the overpayment calculator Martin provides showed significant savings.

My question is will we achieve the same result (ie paying off mortgage approx 6 years early and saving alot of interest payments) if we continue paying £680 but the mortgage providers consider these as payments to reduce our monthly fee?

Thanks in advance

BaconandEggs

This is interesting - and confusing.
I don't have the answer but will be checking back to see if anyone can shed some light on the issue.

When you overpay there are generally 2 options:
1) keep monthly repayments the same and reduce the term
2) reduce the monthly repayments but the term remains the same.

Are you asking whether (if you opt for 1) the difference in monthly repayments between 1 + 2 class as overpayments themselves and therefore need to be taken into account for the amount you are allowed to overpay in any one year?

Engeroosi

If they reduce your payment then increase your overpayment by what the decreased the monthly payment. That way you will pay it off as early as you stated. Plus allows you to reduce the amount you overpay if you cannot afford to maintain that amount.

rover25

I had the same question. I had been advised that the monthly payment would stay the same and thus the term decreased.
However, we made an overpayment about 2 yrs back and I think the lender recalculated the monthly amount. Can't be 100% but think so.
Anyway just double checking the following: if my mortgage payment is usually £750, I overpay by £600 amt, the bank recalculates payment next month to be eg £730, If I just overpay by same £600 and the extra (reduced) £20, then this would have the same effect as reducing the term and or reducing the overall balance as quickly as possible( in order to be able to move house)

Lois_E

It shouldn't make any difference at all unless your mortgage has rules limiting the amount you can OP in one year or something, in which case decreasing the monthly payment rather than the term would make you more likely to get to the limit of what you are allowed to OP.

rowly731

Thank you to evryone who has posted already. I will see what happens with my overpayments and let you know.

getmore4less

WHich lender,, what were the fees for changing to offset?

If you set your payments and don't hit the limits then it will just work anyway.