Bank says overpayments mean my monthly payment has to reduce - correct advice?!

belisha-beacon

We remortgaged in August last year, onto a 2 year fixed deal. The contract that we signed specified what our monthly payment would be, and also said that we could overpay up to 10% of the balance each year without penalty (this year, that is just over £10,000 as we have just over 100k left on the mortgage).

We recently overpaid £7,000 which we got from an inheritance. We have not gone over the annual overpayment limit but the mortgage company has now written to us saying that it is reducing our monthly mortgage payments by £130 each month. When I said that I wanted to keep them at the same level as before, it refused and said that we would be liable to pay a penalty unless we reduce the payments. In the end it has agreed to leave the monthly payment as it is but it says that it will reduce the remaining amount that we are allowed to overpay this year instead. It says this is common practice because otherwise we'll end up paying less interest than it was expecting.

I don't understand this - does anyone know of any common contractual clause which would allow a mortgage company to do this, so that I can check for it in mine? I can't see anything obvious in there but don't want to make a fool of myself by complaining if this is accepted practice! As far as I am concerned, we signed up to pay 12 equal payments PLUS up to 10% of the balance, without penalty, so I can't see why they are not letting us stick to the monthly payments that were agreed. This is important to us because ideally we were hoping that the inheritance would make a big dent in the mortgage and help us get down to a much more competitive LTV percentage by the time we come to remortgage. If we're going to be restricted in what we can pay off then that is not going to happen :-(

dimbo61

You are already 10 months into a 2 year fix, you can overpay 10% again in August.
You will then have to wait 12 months before you can pay another large lump sum off the mortgage balance ( when the fix ends).
Once you have done this you can then look at what deals are on offer from your existing lender or remortgage to another lender

Thrugelmir

Who is the lender in question?

belisha-beacon

Thanks, both. I'm aware that I can start overpaying again in December (it runs on a calendar year basis rather than from the date I took out the mortgage), but the point is that I will lose money if I have to wait to pay it off. We pay daily interest, so the earlier I make the overpayment, the more interest we save. Our budget, and our plans for the LTV that we could reach, are based on trying to pay off the maximum amount at the earliest possible stage.

Thrugelmir, if you don't mind I'd rather not say who the provider is at the moment. It's a very small provider and apart from this issue it has been really good so far. If I've misunderstood the situation and it is actually behaving perfectly reasonably then I don't want to damage its reputation!

hcb42

if you let people know who the lender is, some experts may be able to shed advice, nothing you have said will bring the lender into disrepute

SternMusik

My mortgage provider (YBS) does the same - when I overpay they want to reduce monthly installments to keep the term of the loan the same. I then ring up to say that I want to keep monthly payments at the same level as before (effectively reducing the term) and they happily oblige. I also have 10% per year that I can overpay without incurring charges. The 10% are calculated on the outstanding loan amount on the anniversary of the day that I took out the mortgage.

Have you checked your mortgage documentation? It should explain in detail how interest is calculated and how overpayments work.

amnblog

So this reduction is eating into your overpayment allowance by some £1950 in the 15 months left on the term?

Thrugelmir

belisha-beacon wrote: »

Thrugelmir, if you don't mind I'd rather not say who the provider is at the moment. It's a very small provider and apart from this issue it has been really good so far. If I've misunderstood the situation and it is actually behaving perfectly reasonably then I don't want to damage its reputation!

Then it's diffcult to answer questions such as

I don't understand this - does anyone know of any common contractual clause which would allow a mortgage company to do this, so that I can check for it in mine?

Lenders are within their own rights to set terms of trade (providing all within "Treating Customers Fairly").

If it's a small lender then possible their systems don't cope with non standard payments, as majority of processing is now automated.