Overpayments

Inespa85

Hi,

Its my first time on the mortgage board and i just wondered if you could help with a bit of advice.

Myself and my other half took out a mortgage back in Dec 07. One of the Northern Rock (now NRAM). It was one of their lovely 100% plus loan type mortgages. Probably not the wisest thing we've ever done but we have our own place & now 2 beautiful children so not all bad!

We are currently paying the mortgage as interest only and the loan as repayment, as one payment per month.

In August we will have paid our car off so we want to use this a kick start to getting our finances in order. With the direct debit for the car we thought we'd switch it onto the NRAM debt.

The question is do we pay the loan or mortgage as the repayment or half & half plus will we notice a different monthly (barring any increase in rates)

Thank you for all your help

Thrugelmir

Both incur the same rate of interest. So makes little difference in terms of saving.

From a psychological point of view. The unsecured loan is a better option. You'll see the balance reduce and therefore the light at the end of the tunnel.

Once repaid. You can set your sights on the mortgage.

Inespa85

Thank you

I know you can calculate how much interest you can save however does it cut your monthly payment over time or does that stay the same and more comes of the capital?

Sorry for all the questions

Thrugelmir

Ask as many questions as you like. That's the whole purpose of the forum.

This is from the NRAM website.

If you would like to pay a bit extra each month or you would prefer to overpay with a lump sum, you can. With our flexible mortgages you can make unlimited, penalty free overpayments, provided that the mortgage is not redeemed in full.

As overpayments reduce the amount of money you have borrowed on your mortgage, this could result in a saving in the amount of interest charged, helping you to pay off your mortgage earlier.

Some of the most common reasons our customers take advantage of overpayments are when they have received bonuses, windfalls, an inheritance or through endowment policy proceeds.

Following receipt of an overpayment, your outstanding balance and the interest charged will be recalculated.

If you pay by Direct Debit and the overpayment is £500 or more your monthly payment will be changed automatically. You have the option to leave your monthly payment unchanged, which will have the effect of setting up a regular overpayment and further reduce your outstanding mortgage balance. To arrange this you would need to contact NRAM.

Burridge60

Beware

As an Advisor myself I felt it more than possible to borrow back my overpayments from Intelligent Finance and duly rang them. They then proceeded to tell me that they would need to obtain my permission to carry out a credit check which I initially refused as I wanted to draw on my "Reserve". this was debated for a while referred upstairs and the complaints department called me back. Listened to my complaint explained their position as a "responsible lender" and stated that under FSA regs they must ensure the mortgage and loans is affordable and they must re evaluate all further advances!

They asked me what they could do to rectify my complaint and I stated that they should place my previous overpayments and a large one off payment into one of the savings accounts offsetting the mortgage. They couldn't do this and offered me £150 compensation!

Barclays/Woolwich reminded me in a recent call about their Offset that overpayments to the main mortgage account cannot be re borrowed without income and status enquiries to comply with FSA directives!

So. i would say save your cash in the Bank or B/S until you know you do not need it then make a capital repayment within the lenders penalty free limits. If you are going to need another car loan save for it now instead of overpaying the mortgage then decide if the interest free car loan is better than using your own cash and losing the interest on your savings

Joe_Bloggs

I agree with Thrugelmir and Burridge60.
To effectively save up money then it makes sense to pay off those debts at the highest interest first. Even when this it is done it males sense to have an emergency fund that would prevent the need for a high interest emergency loan in the future.

My suggestion would be make your overpayments by manual standing order/Faster Payment. Split your overpayments 50% to the mortgage/loan and put 50% to an instant access savings account. As the savings approach three months salary then send say 75% to the mortgage and 25% to savings.

The unmentionable elephant in the room is the interest only section of the mortgage. This will have to be managed at some stage.

J_B.