5yr fixed mortgage overpaied, now montley payment dropped

petunio

Can anyone offer advice on this:

• I have a fixed interest rate 5 year mortgage that allows 10% yearly overpayments without incurring charges
• Last year I paid this maximum 10% overpayment plus all monthly payments
• The mortgage provider has sent the annual statement and reduced substantially my monthly overpayments by >16%.
• I looked into the mortgage documents and could not find a clause stating that if I overpaid the allowed 10%, my monthly payments will have to go down
• When I phoned them, they said this is the standard practice to review my monthly payments each year as the balance owned is decreasing
• I argued that when I signed the agreement, I was under the impression that by the end of the 5 years I would have made 61 monthly payments (12*5+1) plus a possible 10% overpayment without incurring charges, as listed in the contract
• They replied that they are allowed to reduce my monthly payments. If I wanted to pay more, it will have to come out of the yearly 10% overpayment, and if I have more questions I should make an appointment at one of their branches.

My question is, can I actually pay the agreed monthly sum (without reductions) for 61 times and possibly overpay 10% of the balance, or are they right in 'forcing' me to pay less each month?


Is there any cause of contacting the financial ombudsman? For me it is clear what the mortgage document says regarding payments and overpayments, and I don't understand why I am made to pay substantially less then what has been agreed! But maybe I'm getting it completely wrong... this is my first mortgage after all!



I hope this is a clear description of my problem - this is my first post!

danjshelton

I'm no real expert when it comes to mortgages, but I have been overpaying and looking into what happens with the overpayment's. I think there are two options with overpaying, to reduce the term (e.g. take time off your mortgage) or to reduce the payments (which keeps the term the same).

I think that the result of reducing the term will mean your monthly payments will stay the same, the result of reducing the payments and keeping the term will keep you on your xx number of years but reduce your monthly payments as you are spreading a lower amount mortgaged across the same time.

It sounds to me like you want to reduce the term, but they have reduced the payments.

Cheers

Dan

PS The only thing that I can't remember is whether I told my lender to reduce the term or the payments, I hope it was the term!

ACG

It makes sense that the amount will reduce, otherwise the term of the mortgage you chose would come down.
When did you take out the mortgage? See if you can reduce the term to increase the payments?

GLA-LHR

Not an expert! But as I've just been reading up on this too...

My understanding is the fact that you have a fixed rate is irrelevant to this. What matters is that you have a fixed term (e.g. 25 years).

If you overpay for a year, you obviously owe less than originally anticipated when your monthly payments were first calculated. To make sure your term remains at 25 years, the amount you have to pay each month obviously drops.

Finally, it is my reading of the terms of my new Santander mortgage, that they allow annual overpayments of up to 10% of the total owed - not just 10% of your monthly payments. Though I've yet to confirm this...

Edit: Others obviously type faster!

Morgage_Confused

i wouldent worry too much.
your over payment has resulted in one of two possible outcomes.

shorter term
lower monthly payments

both are good...its up to you which you would prefer.

your mortgage company has assumed you want lower monthly payments.

so in your case just ring them up and set your payments back to your original amount. that way you reduce the term.

dimbo61

You can ring up your lender and ask that the payments remain STATIC ie what you have been paying for the last 12 months.
If they say you cant do this then ask to reduce the term !!
I paid £50 to reduce my mortgage term from 22 years down to 10 years
Play with "whatsthecost" and reduce the years one by one
I have had a static payment for the last 6 years and have overpaid my mortgage every month,
If you make overpayments the default policy of many lenders is to reduce the monthly payment so that the mortgage runs for the full term

bigadaj

If they really won't reduce the term then you could just make overpayments, can't be bothered to do the calculations but continual overpayments of the maximum amount would clear the mortgage in less than ten years.

Thrugelmir

Morgage_Confused wrote: »

your mortgage company has assumed you want lower monthly payments.

Hasn't assumed. Shortening the term is contractual. So would have to be requested by the borrower. Lender can't impose.

Thrugelmir

dimbo61 wrote: »

If you make overpayments the default policy of many lenders is to reduce the monthly payment so that the mortgage runs for the full term

The payments will be revised to repay the mortgage over the agreed term. (If payments are made by direct debit).

To maintain payments at a higher level make mortgage payments by standing order.

petunio

Thank-you for all your replies! I'm adding a few more details that were asked:

• I took the mortgage in Sept 2010
• Whenever I made overpayments, Ispecified I wanted the monthly payments to remain the same; this is why I was surprised to see this year's monthly payments come down
• I've already phoned the lender; their answer was I can only pay the the newly calculated monthly sum and 10% overpayments
  
• They also pointed out that future monthly payments (next year forward) will then also be lower
• This means that after the 5 year fixed interest period, I would have paid in significantly less then I calculated when I signed-up

I will phone again, take your advice, ask for if the term can be reduced, and see where that gets me, but if you have other advice, please post away.
Thanks!

Gary123456790

Hi,

Did you mention who the lender was? Most lenders allow you to change the term to increase/decrease the payments (latter is usually more tricky!). With Alliance and Leicester and Santander I made overpayments and reduced the term to keep the normal monthly payment the same.

With A&L there was a fee of £25 for changing the term, with Santander its free.

Is the lender refusing to reduce the term?

As I understand it, your original document showing the payments was an illustration - e.g. 300 payments of £x etc. By overpaying you've changed this but I am suprised if they dont allow you to decide if you want the payments reduced or to remain the same.

Regards,

Gary.