Mortgage Overpayment - Silly Question

new2morthgage

Hi,

New to the forum as I have a question about mortgages that I cannot find an answer to online or on this site. I think that is partly because I’m dreaming up that this will work as if it did I’m sure it would not be allowed.

It’s all about LTV’s and overpayment.

As an example if you have a mortgage amount balance of £151k and the property is worth £200,000 then you’re LTV is not yet 75%. With this example your monthly payments are £1000 a month and reducing the balance by £150 each time.

If you want to remortgage to get a better rate but the good rates are at 75% LTV at the present stage you would not qualify however can you get round this by requesting a payment break in Sept but then using the money normally sent to the lender by DD as an overpayment?

My question really comes down to where the overpayment goes, does it come straight off the remaining balance of £151,000 in the example leaving you with £150k and so 75% LTV or does majority go to interest and again £150 only comes off the balance? I’m thinking it’s the later otherwise we would all be taking a payment break once a year as per mortgage terms?

Thank you for any responses.

harvey115

You are thinking it correctly. You basically have two options:

1 - Overpay the current mortgage:
-- Early repayment charges may occur if you are on a fixed deal of some kind
-- The amount you overpay will be reduced from your overall balance. so if you owe £151,000 and you overpay £1,000 you will straight away owe only £150,000


2 - You do not overpay - just add the funds when remotgaging
-- No early repayment charges would occur for overpayment, given thatyou do not break any fixed term contract
-- You keep the money with you and forward it to the solicitor dealing witht he remortgage. The solicitor than adds your extra funds in the process to level the LTV. So in essence, you choose the correct LTV product you would like to apply for (say 75%), then the solicitor will ask your current lender for final statement to be paid off. You will add any shortfalls to meet the 75% LTV for the new deal and job done.

Hope this helps.

So if there are no ERC charges overpay the mortgage now, otherwise use the funds when actually remortgaging.

Thrugelmir

new2morthgage wrote: »

I’m thinking it’s the later otherwise we would all be taking a payment break once a year as per mortgage terms?[/FONT]

Thank you for any responses.

A mortgage break will mean that interest will be added to your mortgage account. Every month you'll be charged further interest on the interest until you resume paying the capital off.

On the majority of mortgages. Interest is now calculated daily and charged monthly. So the sooner you start overpaying the better.

The less the you owe the less interest you incur. The quicker the mortgage gets rapid. Though remember repaying a mortgage is a marathon not a sprint. So don't expect an immediate sizable impact.

new2morthgage

Thank you for the info Harvey.

Thrugelmir what if you were to take the payment break then use that money to overpay and then remortgage 6 weeks later to another firm (incurring no costs from current lender) then the interest accrued would be less of a factor?

I can understand taking a payment break to overpay if you're staying with the current lender on the same deal could not be beneficial however this is to move away from current lender.

Dave_Ham

Its not going to make the difference to your redemption figure that you are hoping.

If your mortgage is £151k and then you take a payment holiday, it will still be £151k. This is why you can typically only take a payment holiday (on new mortgage terms) by an amount that you have overpaid by, so it does not affect mortgage term.

Banks do differ in their approach to this, but the payment you do not make is not going to go away or be swallowed by other payments at no cost.

I do not think this will serve the purpose you are hoping for...

Good luck

Thrugelmir

Dave_Ham wrote: »

If your mortgage is £151k and then you take a payment holiday, it will still be £151k.

After 1 month at 5% per annum interest rate. The balance owing will rise to around £151,630. As the unpaid interest will accrue.