Help me understand overpayments on my mortgage

UrWntr

Hi All,

I'm about to take out a 4.59% 2 year fix with the Post office for a loan worth ~£180,000.

According to the illustration my monthly repayment for the first 2 years will be £1015. The follow-on rate is 3.49%+base rate.

I'm keen to overpay the mortgage from the start but I'm somewhat confused by the rules.

Ideally, I would like to overpay by an additional £1,000pm.

In my illustration it states the following:

10. Early repayment charges
Early repayment charges will apply if you repay all or any part of this mortgage before 31/12/2013.
Cash examples if you repay the mortgage in full
Early Repayment Period Basis of Charge Amount of charge
Up to and including 31/12/2013. 3% of the amount being
repaid
The maximum charge you could pay is £5,428.50 plus any mortgage release fee (see Section 8) . If you have deferred
payment of the lending fee then you will also have to pay this when the mortgage is fully repaid. The amount of the
lending fee is £195.00

11. What happens if you want to make overpayments?
Overpayments are permitted on this mortgage. A lump sum overpayment can only be made by cheque and is any amount that
you pay to us in addition to the monthly payment due. When we receive a lump sum overpayment, we recalculate the amount
you owe and the amount of interest you pay with effect from the following day. This means you get the benefit of paying less
interest straight away. Regular overpayments can only be made by standing order and are amounts that you pay to us each
month in addition to the normal monthly payment. When we receive a regular overpayment, we recalculate the amount you owe
and the interest you pay from the first of the month after we receive the overpayment. The amount you owe will not be reduced
immediately. Early repayment charges may apply and we charge an administration fee (currently £50) on each occasion
– please refer to section 10 for details. However, during each financial year you can make lump sum and/or regular
overpayments that will not incur an early repayment charge or an administration fee providing that (1) each lump sum
overpayment is not less than £500 and (2) the total amount repaid does not exceed 10% of the amount owed at 1 April.
If an overpayment is made which causes the total amount overpaid to exceed 10% then the whole of that overpayment
will be subject to any early repayment charge due and an administration fee will be payable.



Can anyone calculate the most cost effective way for me to overpay? I'm very confused.

My understanding is the following:

1) I'm allowed to overpay by 10% of the outstanding loan each financial year.

2) Therefore in year 1 with a loan of £180,000 I could hypothetically overpay by £18,000 before april 1st when the new financial year starts.

3) Next financial year, i will be able to overpay an additional 10% on whatever the outstanding balance was on April 1st.

I also don't understand the distinction between lump sum and regular overpayments. For example, what if i set up a standing order for 1 monthly only for an overpayment £100. Would this not incur the £50 administration fee because it was not paid by cheque?

Sorry for the long post and thanks in advance for your assistance.

-UrWntr

Thrugelmir

If you intend making overpayments during the initial fixed term then this product may not be the most suitable for you. As a 3% charge will be levied on any overpayments during the period to 31/12/2013.

getmore4less

I read this as saying to incure no fees/charges each payment needs to be £500+ and less than 10% in total.

Payment needs to be in by the end of the month if a regular.

What is not clear is how many cheque based payments mean you should be using regular payments, als onot clear if they regular payments need to be the same or just £500 or over

UrWntr

Thrugelmir wrote: »

If you intend making overpayments during the initial fixed term then this product may not be the most suitable for you. As a 3% charge will be levied on any overpayments during the period to 31/12/2013.

Ah that makes sense. Is that what this means?

Early repayment charges will apply if you repay all or any part of this mortgage before 31/12/2013.

I still don't fully understand. Should that not say:

Early repayment charges will apply if you repay all or overpay any part of this mortgage before 31/12/2013.

?

Thrugelmir

UrWntr wrote: »

Ah that makes sense. Is that what this means?

Early repayment charges will apply if you repay all or any part of this mortgage before 31/12/2013.

I still don't fully understand. Should that not say:

Early repayment charges will apply if you over[STRIKE]re[/STRIKE]pay all or any part of this mortgage before 31/12/2013.

?

I can understand why there is confusion. The clause has to be read in terms of being "early". As your standard monthly repayment will be a fixed amount not variable. As specified in the mortgage offer.

UrWntr

To confuse things further, it says this on their web site:

In your promotional period you can make overpayments of £500 or more without incurring any charges, so long as the total amount of overpayments is not more than 10% of the remaining balance as it stands on 31 March each year. After the promotional period overpayments will be subject to an administration fee of £50.

http://www.postoffice.co.uk/portal/po/content1?catId=86600738&mediaId=76900735#45400280

Thrugelmir

Promotional period will relate to particular mortgage products. This is not necessarily applicable to the product you are considering.

The terms and conditions of the mortgage offer will be those that you have been given.

dimbo61

Speak to your lender but you should be able to set up a standing order to overpay the £1000 a month you want too without having to pay any fees.
Just check the first time you make the overpayment to make sure you have not been charged