Difference between overpay and part redemption

ammonite

Hi All,

Recently started overpaying our new Woolwich mortgage. I paid £500 and £600 directly as overpayments to Woolwich and heard nothing so I assume they received the payments?

I paid £900 this month as an overpayment in the same way as the others and had a letter through saying it has gone through as a part redemption and have 90 days to let them know if we want the payment to applied as an overpayment.

Firstly, what is a part redemption and secondly, is it better to overpay or have the part redemption? From what I can see our monthly payments will go down by £8 per month but I don't know if part redemption contravenes our mortgage contract in any way.

I have rang Woolwich but they are closed today and we are away for a couple of weeks now hence asking on the forum to save me worrying too much about it when we are away.

Thanks in advance

nxf

We too have been overpaying our Woolwich mortgage by approx £2000 a month but occasionally will pay more.

What we have learnt (and also confirmed via a phone call to Barclay/Woolwich mortgage) is that our monthly direct debit payment will only change (reduce) if we overpay a minimum of 3x previous monthly amount. This is then referred to as a part redemption. Anything less is an overpayment and does not change the future direct debit amounts.

This has just occurred with an overpayment of £10,000 and we too got the letter stating that this was a part redemption and to contact them in 90 days if we wanted it as an overpayment etc.

My maths says there is no financial benefit of less to pay overall with using the part redemption (paying a slightly reduced monthly direct debit, with the savings added to the next overpayment), compared with the non-reduced direct debit (over payment) and the standard overpayment.

The one advantage of using the part redemption is that the monthly direct debit amount will be reduced so the minimum you "have" to pay monthly is getting less, which might be handy in future hard times?

dhbedson

Apologies for resurrecting this month old post, but I too have received a letter today.

I overpaid a larger lump sum this month, with the intention of overall reducing the amount of interest I pay. I too am completely baffled by what this means, and have contacted my broker for some advice.

I paid the lump sum because I can afford to do so AND continue my standard payments. I don't mind if the monthly payments go down, but equally I don't mind if they stay the same - my intention is to pay the mortgage off quicker thus reducing my interest

Am I right in thinking I probably want to phone Woolwich and tell them to take it as an overpayment instead?

Goldiegirl

It doesn't really matter whether it's called an overpayment or a part redemption, the effect is the same. By paying more than your contracted monthly payment, you will pay the mortgage off quicker and reduce your interest.


Some lenders (not all) let customers draw back overpayments to the mortgage. So an 'overpayment' could be looked on as a more informal additional payment, which could be drawn out again if your lender permitted it.


But with a 'part redemption', once it's in the mortgage, it can't be drawn out again, so it's a more formal arrangement.


It's up to you how you want your lender to treat your additional payments - but the effect is exactly the same - the same reduction in debt, the same decrease in interest charged

dhbedson

Lovely thank you goldiegirl

nxf

Goldiegirl wrote: »

......... It's up to you how you want your lender to treat your additional payments - but the effect is exactly the same - the same reduction in debt, the same decrease in interest charged

Technically it is not the same, the amount your mortgage provider will collect each month the "contractual amount" will reduce with a part redemption, it does not reduce with a part payment.

So surely it is better to contractually owe a smaller amount each month, and overpay a lot, than to owe a lot and overpay less?

The overall debt is the same either way you choose, its just part redemption puts YOU more in control over the payment amounts.

jimmybrid

I have a slightly different take on this than nxf, maybe an example will help to explain:


Let's say you normally pay £750 per month on your mortgage over a 25 yr term (300 payments). If you make a single overpayment of £750, but your normal payment stays at £750, you pay off your mortgage one month early (299 payments) thanks to that overpayment.
If the £750 payment were taken as a part redemption, the lender would recalculate your monthly payment to spread the remaining borrowing over the full term. Although your monthly payment would drop (very slightly in this example) you would not pay your mortgage off early (still 300 payments) and your overall interest payments would be higher than if you classed your one-off payment as an overpayment.


My view, tell them it's an overpayment.

getmore4less

If you still have an operating reserve it may effect how much gets added to the overdraft on that.

getmore4less

jimmybrid wrote: »

I have a slightly different take on this than nxf, maybe an example will help to explain:


Let's say you normally pay £750 per month on your mortgage over a 25 yr term (300 payments). If you make a single overpayment of £750, but your normal payment stays at £750, you pay off your mortgage one month early (299 payments) thanks to that overpayment.
If the £750 payment were taken as a part redemption, the lender would recalculate your monthly payment to spread the remaining borrowing over the full term. Although your monthly payment would drop (very slightly in this example) you would not pay your mortgage off early (still 300 payments) and your overall interest payments would be higher than if you classed your one-off payment as an overpayment.


My view, tell them it's an overpayment.

if you overpay by one months payment you will same more than 1month on the term if keep the payments the same.

getmore4less

nxf wrote: »

Technically it is not the same, the amount your mortgage provider will collect each month the "contractual amount" will reduce with a part redemption, it does not reduce with a part payment.

So surely it is better to contractually owe a smaller amount each month, and overpay a lot, than to owe a lot and overpay less?

The overall debt is the same either way you choose, its just part redemption puts YOU more in control over the payment amounts.

Barclay give you the option with overpayments so you stay in control, at any point you can have the payment based on outstanding balance and full term.

there are conditions where it is always done.

getmore4less

With Barclays you should be able to set your default for overpayment/interest rate changes to never reduce the payment.

we still pay the same as when it started the rate was over 5% now it is 1.45% and loads of overpayments.