Interest charged daily, monthly or yearly?

Morgage_Confused

I know this is a basic question to which I should know the answer. Of course I could dig through all my mortgage paperwork but I was thinking someone might just know the answer.

I have a woolwich/barclays mortgage. Great escape product, tracker 2.18% over base.

Does anyone know how interest is charged and therefore what is the best technique to making overpayments. I understand if interest is charged yearly then any overpayments wont make any difference this year if interest is fixed for the year. I cant believe any banks still charge yearly interest but its got me thinking now. For that matter even monthly interest is still a tricky bank trick.

thanks

Evilm

Its Daily.

Thrugelmir

Calculated daily, charged monthly.

So the sooner you make an overpayment to your mortgage account, the sooner its working for you saving interest.

Morgage_Confused

Ok thanks for the advice....

I just got off the phone to barclays to get my overpayments comfirmed and my mortgage balance(as they dont show the mortgage online....!!). I think it must have been an indian call center, bangalore maybe?

The guy comfirmed overpayments have gone through but then went on to give me some VERY bizarre advice concerning the overpayments. Now I went over and over this advice with him as I was stunned with his revelation. So I am certain the following is what he said.

He said that my monthly mortgage payment would not reduce. Now this is contrary to what my barclays branch mortgage guy had just told me. He said my monthly payments would reduce and a letter would be sent out stating my new monthly payment level. I should comfirm here this is a repayment mortgage.

I dont necessarily have a problem with the fixed montly payment( after an overpayment) though as obviously it should result in further overpayments each month which I am happy with. However the bombshell was then dropped by Mr Bangalore who stated in no uncertain terms that the overpayments would do NOTHING of any benefit to me and would just sit there as a credit on my mortgage account? I went over and over this with the guy so I am certain this is what he said. He absolutely said my interest payments would remain unchanged even though the balance had reduced. He said this would be taken into account at the end of the year on my annual statement, implying interest calculated yearly?

He went on to state that to recieve any benefit I would have to ring up after each overpayment and request the monthly payments be recalculated in line with the overpayment. He said this was the ONLY way to benefit from the overpayments?

So something must be incorrect with the information recieved from the call center....something is not right.

Basic figures.
Initial £185,500 mortgage 2.68%..20years..payments £1000 pm
£5000 lump sum overpayment.
Current mortgage balance.....£177,546


What will happen next is anyones guess judging from the call center advice.
Will repayments reduce
Will repayments remain fixed
Will I benefit from overpayment, aparently not unless I ring them up.

Anyone know for sure what will happen to my mortgage.
thanks

ViolaLass

Some banks do this i.e. when you overpay, you have to tell them that you want it applied to the mortgage immediately.

Some banks will change the term i.e. shorten it and some will reduce the monthly payment and keep the term the same.

Just tell them what you want them to do.

Morgage_Confused

My mortgage offer says:-

"What happens if you want to make overpayments?
A capital reduction of 10% can be made without early repayment charge. This will apply throughout early repayment period.
Following receipt of an overpayment or a lump sum reduction we will immediately reduce the balance on which interest is charged. This means that you will recieve the benefit straight away."

So how does that fit in with no benefit at all unless call is made to indian call center in bangalore? What concerns me is that i could have spent all year overpaying to find no benefit at years end because i diddnt call them?
So who on earth overpays and doesnt want it applied to the mortgage immediately because by default that is the implication at barclays?
I am still thinking to leave it till the next monthly payment is taken and then make a complaint as it doesnt sound right to me. Considering I have been told twice in branch by different people that by default my payments will reduce and a letter will be sent out to inform me of the new payment level. In branch they said in order to keep payments the same I would have to ring up to request it.

Who would have thought a simple overpayment would unleash hell on my mortgage. Roll on till the end of my tie-in so I can get an offset elsewhere.

Lokolo

No no, what will happen will be that your payments stay the same, but your mortgage term will be reduced. You can change this, I believe some charge to change though (Santander charge something like £50 to change from term reduction to monthly charge reduction).

So your overpayments will take your repayment period down by an extra month or so.

Morgage_Confused

That would be fine Lokolo and in fact would be my preferred route. I dont want the repayments to reduce but im being told at least two(maybe 3) different things by barclays and their call center.

1. Ive been told in branch that by default payments would reduce.
2. Ive been told by call center that nothing would hapen with overpayments unless instructed by me and payments would remain the same.
3. Call center said my only option to recieve any benefit was to request repayments reduced.

Now you are sugesting a fourth result of overpayment that term would reduce by default?

curiouser and curiouser

Lokolo

I am only suggesting that it would reduce the term is if your repayments are being reduced and the interest rate is static. Otherwise overpayments would be pointless.

If you have time, go into branch and say you've made some overpayments but you've been told it would reduce your repayments, and it hasn't. Ask them to explain why it hasn't (I suspect they will say it has reduced the term if this is the case).

Morgage_Confused

Yes I quite agree....only two results seriously possible.
Reduced payments....or
Reduced term

But why the third and apparently default option revealed by ringing the call center which absolutely said nothing would happen unless I instructed them to reduce the payments. Im suspecting both the call center and the two branch staff are all wrong. I suspect you are correct about term reduce and payments the same. Thing is when I suggested this to branch mortgage guy he catorgorically stated payments would reduce by default. So its not like I can trust anyone at barclays at present and will just have to wait and see what the result of my overpayments will be.

how frustrating

getmore4less

A bit of background with Barclays


IT has got a bit confusing because Barclays(woolwich) changes the T&C's on how they do this(it was a while back and I don't have the info to hand) sort of adjustment

The mortgage works by daily interest added monthly, I think with many barclays mortgages this is on the 1st, with normal payment on the 16th.

The standard payments were calculated yearly, so when rates change the payment may not be the right one and this is great when rates drop(overpayments) but potentialy not so good when rates rise(underpayments)

These days people moan, they don't read the T&C's, then find they have not been paying enough so the T&C's changed so that on interest rate changes the new payment is calculated, and no longer waits till end of mortgage year.

For overpayments there is the option to reduce payment or keep them the same, till the next automatic calculation

For offsets this defaults to never reduce only increase even on auto calculation dates.

For a regular mortgage I am not so sure since i don't have one.

But I have to say from all the information I have on Barclays mortgages the call center were way off my understanding.

I would recommend getting your written T&C's out and seeing what they say, mine for tracker /offset took a little bit of thought but made sense and with an offset with monthly statements easy to check against what was said.

summary

payments should come off the debt and reduce the interest.
unless on reduce payments they stay the same(default).

The "reduce term" is not the "real term" of the mortgage that stays the same just that you will pay it off sooner due to overpayments.

Another way to check what is happening is the mortgage cuurent account, you accumulate overpayments there as an overdraft.