overpayment-will it reduce term or monthly payment or both

bee78

Hello everyone,

Our mortgage is 232999. We pay 4.49%...and the payment is £1293:eek:. At the moment i have started overpaying £300 monthly on regular basis via standing order on top of the £1293. When i set this up, the the bank said to me, there will be no changes to my monthly payment, as the overpayment is under £500, and any changes will be calculated daily, but will be reflected at the end of a year(from start of mortgage) and payments adjusted afterwards.

So does this mean,I will not be reducing the term of the mortgage, but only monthly payments. Could i keep the monthly payments the same(1293)when it comes to the end of one year, and still overpay pay £300, and reduce term?

Very confusing????? i would like to know, wheather my term would reduce or not with me overpaying £300 monthly for the next 25 years.:cool:

Carlos77

When i started overpaying, my lender gave me 2 options, i could either pay a fixed amount every month, or a fixed amount above the normal repayment. This meant that if i chose option 1 and the interest rates rise, my payments would have stayed the same, but my overpayments would have dropped, or (the option i chose) any interest rate rise raises my payments. Each payment extra you make will reduce the term, and lower your total interest cost of the loan

edinburgher

Silly question, but did you ask them to exercise either of the options mentioned by Carlos? Your term will reduce, but only if you ask them to reduce the term! Otherwise, I think they'll assume that you want to keep the term, but lower the monthly payments.

shop-to-drop

You really need to phone and ask as it will depend on your mortgage contract.

bee78

edinburgher wrote: »

Silly question, but did you ask them to exercise either of the options mentioned by Carlos? Your term will reduce, but only if you ask them to reduce the term! Otherwise, I think they'll assume that you want to keep the term, but lower the monthly payments.

Why is it a silly question?

If I choose to reduce term, then my minimum monthly payment is going to up, and the lender would have to recalculate my interest. My point of overpaying was to reduce term with keeping the original minimum payment.

I guess I just would have to call lender. I just wanted some thoughts on the board before I did this........no harm in that....

bee78

shop-to-drop wrote: »

You really need to phone and ask as it will depend on your mortgage contract.

Thanks for the great advice:T

edinburgher

Why is it a silly question?

No offence intended bee78 - I was saying that *I* was asking a silly question - i.e had you asked the lender to reduce the term yet?

I wasn't saying that *you* had said anything silly. That would be very rude of me and I try to be helpful wherever possible! :eek:

pavlovs_dog

as a result of our OPs our mortgage payment has decreased slightly every year when we receive our mortgage statement. I simply phone up the bank and ask them to keep the payments the same. This means we get a 'free' OP every month as it is money we were used to spending.

It is also worth checking whether your lender imposes any early repayment charges. For example, if we OP more than 10% of the outstanding balance each year we would be charged a fee. Not an issue for us as we are in no danger of being able to OP those kind of sums, but some OP up to their maximum and then save the remaining OPs in high interest accounts until the new financial year.