Santander Overpayment Pot, HELP!!

cdubu

Hi,

This is my first post, so be gentle!

I have a Santander mortgage and some savings currently in various ISA's. I was chatting with a friend the other day and he suggested i pay the savings off my mortgage as it would reduce the interest owed by a large amount.

My concern is that if I used my savings to pay off some of my mortgage and something terrible happened (like losing my job, god forbid) then I would not be able to get my hands on the money. He said that if I have overpaid i should be able to take a break from paying as I have overpaid should the worst happen.

So i called Santander and although I am not on a 'Flexible' mortgage I could put the money in an 'overpayment' pot. This would be used to pay the mortgage until it was empty but i could continue to make my regular monthly payments as overpayments too.

This is where I got confused... Apparently this overpayment pot does not reduce my overall owed in the same way that a capital repayment would and therefore would not reduce the interest owed, so what's the point?!

I cannot find any details about this overpayment pot in my mortgage paperwork or on the Santander website and although the guy on the phone said he'd send me a letter with the details I don't expect it to help much.

Does anyone here know about this mysterious overpayment pot (my mortgage advisors had not heard of it) and if it does what i am looking to do?

Thanks in advance,
C.

Let_Us_See

The gall of lenders never fails to surprise me. "Give me your money and then I will give you nothing in return" what a cheek! Santander, along with other lenders, offer a flexible offset facility where it is possible to hold a mortgage pot - to effectively reduce your capital borrowing or your monthly payment - and still retain control of your funds in case of a 'rainy' day. What Santander offered you appears to be the worst of both worlds.

cdubu

Yeah they do but I'm in a fixed rate contract apparently the rates for these are higher anyway! Doesn't seem to be any incentive for me to pay back early does there?!

Let_Us_See

None whatsoever! The amount of capital you could repay is also restricted with a fixed rate.

cdubu

Yeah 10% per annum apparently. Not much incentive to be a good buy and pay my debt off is there! But paying things off early means they make less interest money i guess so why would they want me to!

kingstreet

A fixed rate involves another party to the transaction between you and the lender, that's the provider of the rate swap which gives you your fix. The lender is stuck with making the payments for the swap and has to try to discourage you from early repayments by imposing penalties for doing so.

At one time there were no overpayment options on fixed rates. It's only in the last ten years the ability to overpay by 10%pa has appeared as lenders try to be more flexible.

The fees/penalties charged aren't simply additional profit for the lender, they are compensation which has to be passed to the swap provider.