Overpayment limits

peak_amperes

Hi Folks,

Wanted to know if there are any mortgages, which do not impose limits on the amount (not frequency) of overpayment.

For eg. Lets say the mortgage amount is 350k with a monthly installment of 1650GBP. Along with this amount I want to overpay 5k. Is it possible?

I am being informed that most lenders impose 10-20% max limit

Thrugelmir

Depends on the mortgage product as to the overpayments allowed.

Have you considered an offset mortgage to achieve your aim?

Jimbo1976

Most lenders do have a 10% limit, i think the new Tesco mortgages have a 20%. There are a few mortgages out there which have no early repayment charges at all.

As Thrugelmir has suggested an offset deal may be a good option. If you are sure that you can continue to pay off £5k per month, you could convert to a repayment mortgage and reduce the term but there is a risk that if you do this and then want to go back to your original payment your lender may not be very accomodating

HeadAboveWater

My OH is in the process of switching over to an HSBC mortgage. He's got a variable rate for the life of the mortgage, as opposed to 2 or 5 years. No fee to switch. No problems with overpaying monthly. No problems with bulk payments as and when he wants to.

snow_ball

It's product/ERC not mortgage related (in most cases?), while we were in our fixed period (with an ERC) we were limited to 10% but now we have reverted to SVR (no ERC) we can make unlimited overpayments. Check with your mortgage company though as to what they will do for overpayments over a certain amount, for example I seem to recall mine would automatically recalculate the payment if I make a capital repayment of £10k or more.

llyamah

HSBC's tracker mortgages allow unlimited overpayments without charge.

peak_amperes

Pkease can someone explain how an offset mortgage works and how it will help in this case?

The intent is to clear off the mortgage in 5-6 years time. Also, tracker mortgages - when they say they dont charge for unlimited early repayments. The unlimited refers to the frequency and not the amount. I believe even they have a limit of 10%?

Jimbo1976

Offset works by effectively matching your savings account with your mortgage account. Eg if you have a mortgage for £100,000 and £50,000 in savings then effectively you only pay interest on £50,000. With some lenders you can ask them to alter your payment downwards but with other lenders (and this is what i think would be best for you as you want to pay off your mortgage early) you can keep your payment the same but effectively you are overpaying (as your interest charge has gone down due to the offsetting) so you start to pay your mortgage balance down more quickly.

Have a look at a couple of lender websites and the ones which offer offset (Barclays, NatWest to name a couple) will have an offset calculator which shows how it works and how quickly you can pay off your mortgage

Trying_to_be_good

Peak

As others have said, it depends on any ERC on the mortgage product - some are very flexible either no ERC when you make huge overpayments, some charge.

There's a link at the top about offsets. We have one, and can have up to 90% (might be 95%) of the mortgage value in our savings account, which itself warns no interest but we only pay mortgage interest on the outstanding mortgage LEAS THE BALANCE IN THE OFFSET SAVINGS ACCOUNT.

So, £300k mortgage, £100k in the offset savings, only paying interest on the net £200k borrowing. And easy access to the savings (and to add to them) via internet banking. It's great! Our monthly repayment is about £2k and we can save pretty much what we like. Eventually, we can transfer from the offset to the actual mortgage, the 10% overpayment limit just doesn't matter during our 5-year fix, as the extra sits in the offset.

peak_amperes

Excellent responses Jimbo1976 and Trying to be good. Thanks!

So, i get the feeling that Offset mortgages work well for savers...works for me!

Ok, so for, £300k mortgage, £100k in the offset savings, I am only paying interest on the net £200k borrowing...but month on month I will keep saving and these 200k should keep reducing..which means my monthly payments too will keep reducing...

How do you completely pay off this mortgage? I want to repay the mortgage completely.

Eellogofusciouhipoppokunu

Offset mortgages are often have higher interest rates, making them more expensive than other types of mortgages. They are also only offered by a few lenders, which again adds to their uncompetitiveness. If you will regularly have a large lump sum each month to deposit, you can reduce the term of any mortgage, which increases the amount you repay.

Speak to a mortgage broker to get the right mortgage for you.