Overpayment confusion (newbie!)

Bezmond

First I'd like to say how great you lot are!! So many wise people here!!
Wondered if you could help me a little?

I have a mortgage with Bank of Scotland which is fixed for 3 years. I have been wanting to start overpaying for sometime but never got around to it.
So I read loads on here, and gave them a call.
They told me that I could overpay 10% in a 12 month period. Fine I thought, but then said that I could either have the amount off my monthly repayments or the term.....
I told them I would prefer the term (as i read on here this was the better option) but they told me that this would mean a £10 charge every time I overpayed on the term but not on the montly repayments.
Is this a common charge? Or are my mortgage lenders just taking the mick?!
Is there anyway around it? what if I saved up my money then made one lump sum each year?

Sorry to sound so thick!! still learning!!

Thanks :-)

Dithering_Dad

Sounds a bit harsh, you might want to check your terms and conditions (or ask the bank to send you a copy of the T&Cs with this particular charge highlighted).

If they produce the T&Cs and the £10 charge is binding, then if I were you I'd overpay with the reduced monthly payments option and then after the three years is up, look elsewhere and arrange the next mortgage over a shorter term.

Meanwhile, during the three years of overpayment, put the £10 fee they would have charged you for each overpayment and the difference between your current mortgage payment amount and the reduced payment amount into an ISA and throw the lot at the mortgage at the end of the three years. That'll show em !

Bezmond

I just had a look at the terms on there website:

Change of Mortgage Term £10

We make a charge if you ask us to change the term of your mortgage.

So is this correct? By overpaying I am changing the term therfore have to pay £10 each time?

jamesd

The term isn't the better option. It makes no difference at all to when the mortgage ends. All that matters is how much the monthly payment you're making is. If that means that the term ends five years early, that's when it'll end, regardless of whether they have recalculated the term or not. Meanwhile, you keep the flexibility of being able to drop the payments to the minimum required to pay it off at the end of the term, which can be handy if you're temporarily unemployed, say.

I suggest that you set up a regular monthly overpayment with it taking the money off the overpayments. Make one final payment of any remaining part of the 10% overpayment at the end of the year.

Or if you want to get fancy, work out your total overpayments then how much interest you'll pay on half of that much. Divide by 12 and add that to the initial monthly payment amount you set and that'll compensate for the reduction in monthly payment, if they reduce it every month. If they don't reduce the payment each month this doesn't matter.

Dithering_Dad

Bezmond wrote: »

I just had a look at the terms on there website:

Change of Mortgage Term £10

We make a charge if you ask us to change the term of your mortgage.

So is this correct? By overpaying I am changing the term therfore have to pay £10 each time?

James is right, it doesn't matter how long the mortgage term is with the bank, once you have paid off the mortgage, that's it! The term for my mortgage is 21 years as far as the bank is concerned, but after making over a 10k (and counting) capital repayment there is no way it's going to go on for that long.

You would only have to pay the extra if you asked your bank to reduce your term from say 25 yrs to 20 yrs, not because you are making overpayments. Some people prefer to reduce the term by a few years each time they remortgage so that it forces them to overpay. I think it's risky because their circumstances may change and they could use that money elsewhere but are stuck with higher repayments. Better IMO to keep a low minimum monthly repayment and make overpayments as and when you can afford it.

cupid_s

But when I asked to make overpayments on my mortgage I was told that if I overpayed and didn't want my monthly payments to go down, the term automatically would.

Bezmond

Greatstuff - thanks for you help guys!

So just to be clear whan i ring up to set up overpayments I want to tell them its off my monthly amount?

Bezmond

Greatstuff - thanks for you help guys!

So just to be clear whan i ring up to set up overpayments I want to tell them its off my monthly amount?

Dithering_Dad

cupid_stunt wrote: »

But when I asked to make overpayments on my mortgage I was told that if I overpayed and didn't want my monthly payments to go down, the term automatically would.

That's really unfair because it doesn't necessarily follow that just because you overpay, your mortgage will be paid off earlier. You may overpay and then take payment holidays. Or overpay to reduce the term and then decide later on to reduce the payments instead.

Grr, ruddy banks!! :mad:

jamesd

Bezmond, yes.

There are mortgages where there's a cap of overpaying say 500 a month. For people with those mortgages it would be necessary to reduce the term to be able to overpay by more than 500. Just doesn't apply to your situation.

comping_cat

Ive been overpaying on my mortgage for a year now, but when i had my last mortgage statement (last month) it showed that i still had 26 years, 8 months left and my monthly repayments were the same, although by one of the mortgage calculator on here, it was showing that i had knocked just over 3 years off the term - so they dont have to change anything if they dont want to!!!