Customer Payment Allocation -Halifax

beckyblyth

I have just received a letter from the Halifax saying they are crediting my mortgage account with a goodwill payment to cover additional interest charges for the first 12 months incurred by a change to allocation they brought in last year. Now it's up to me to choose how my payment is allocated inorder to avoid unnecessary interest.
There is an online calculator you can play about with. Ive had a go at dividing the payment different ways but wondered if anyone else has experience of this?

I have 4 yrs 5 m left, three sub accounts, 2 at 1.99% approx. 18k variable and 1 at 3.99 variable approx 4k.


Any advice? Or is it just a matter of me juggling with the online tool until I get the best saving of interest??

Thanks

CLAPTON

why wouldn't you pay the max off the one with the highest APR (i.e. 3.99% until it's clear?

beckyblyth

Hi
Thanks for replying! Yes, that was my initial thought but when I put it into the calculator (100% towards the higher rate account) I didn't get the biggest saving of interest. I'm guessing that this is due to the fact the other accounts wouldn't be reducing at all, just attracting interest on the current amounts. Also perhaps the fact one sub account is 12k @ 1.99 % where the higher rate of 3.99 is only on 4k?

I need to go back and check but think I got the best saving with a 50:40:10 split. The saving was minimal but better than nothing and I certainly don't want to pay more than I need to. I'm also not sure if the few overpayments I made were taken off the higher rate as I requested!

I can't wait to be debt free!

Becky

Thrugelmir

Always pay off the debt with the highest rate of interest first.

Once the 3.99% account is repaid you can redirect that money towards the other accounts. Overpaying is the key in the long term.

beckyblyth

Hi
Thanks for your reply and yes I agree but was thrown by the calculator results. Do you think the results I got when opting to allocate 100% to the highest rate were due to the fact the calculator doesn't factor in paying that part off in less than the remaining 4yr 5m term?

dan3131uk

Becky,

We have had the same letter and are in a similar situation albeit different rates, ammounts and durations. I assumed 100% on the highest rate would would better but is not according to the Halifax Calculator.

The Halifax booklet issued with the letter states "The tool will display the potential impact on the interest that you’d pay until a sub-account is forecast to be repaid or its term expires" the fact that is says forecast to be repaid suggests that it dose calculate an earlier finish of a sub-account.

It would be good if someone could clarify as something doesn't seem quite right to me.

Dan

Thrugelmir

Depends on the mortgage product. If there are limits on overpayments or early repayment charges then the benefit of overpaying may well be lost. If there's none. Then highest rate of interest first is the answer.

philsteward

Hi all,

I have had the same letter and tried the same thing and thinking I knew what I wanted (max on biggest interest rate) I don't very confused!

I have account 1 with £10k over 30yrs @ 3.99%
and account 2 with £120k over 30yrs @ 0.5%

If I do 100% to account 1 then I only save £461 interest
If I do 100% to account 2 then there is an increase of £4433 interest.

The best option (biggest interest decrease) is 14% allocated to account 1 and 86% allocated to account 2 saves me £1938 in interest.

If I reduce or increase the percentage to account 1, the saving goes down, just doesn't make sense!

Also, if I have understood it correctly, then this is allocation of the repayment element of my monthly payment, as such the interest accrued for each account is already paid off, it is the amount remaining from my monthly payment which I am choosing where to allocate it. Hence, surely choosing the account with the highest interest would be most logical. I do understand that there might be a balance as at some point the interest on the smaller balance with the higher interest rate will be less than the interest on the bigger balance with a lower rate, if that makes sense!!

Very lost, any help?! If it does help you can go to the site yourself, anyone can it is halifax.co.uk/cpa and stick in some figures.

Thrugelmir

philsteward wrote: »

I have account 1 with £10k over 30yrs @ 3.99%
and account 2 with £120k over 30yrs @ 0.5%

If I do 100% to account 1 then I only save £461 interest
If I do 100% to account 2 then there is an increase of £4433 interest.

How did you arrive at your figures?

If you clear account 1 totally. Then the repayments can then be redirected to clear account 2.

philsteward

Thrugelmir wrote: »

How did you arrive at your figures?

If you clear account 1 totally. Then the repayments can then be redirected to clear account 2.

I used the online illustrator provided by Halifax at halifax.co.uk/cpa.

Use my figures and try for yourself. I agree with what you say, however Halifax don't seem to, that is my point!

Thrugelmir

philsteward wrote: »

I used the online illustrator provided by Halifax at halifax.co.uk/cpa.

Use my figures and try for yourself. I agree with what you say, however Halifax don't seem to, that is my point!

What lump sum are your proposing to pay in?