Clydesdale Mortgage Overpayment

NIKKI99

Hi
I'm wondering if anyone can offer advice and / or share experiences with regard to the following situation. Sorry if it's rather long.

My mortgage is with Clydesdale bank, interest-only, still within the 2 year initial fixed rate period. Terms are that during the initial period, repayments of up to 10% of the outstanding balance per year are allowed without incurring penalties. Mortgage terms are daily interest with "immediate recalculation of the amount that you owe and the amount of interest that you pay". Hence, my understanding is that the 10% repayments should lead to a corresponding reduction in the monthly interest cost.

This was the case when I made a repayment in the first year (lump sum repayment of GBP 18,000 in 2013, immediate reduction of the monthly interest cost).

However, this year I made a lump sum repayment of GBP 7,000 but I was told that the monthly interest cost would NOT decrease. I really can't understand how this would be the case. Clydesdale have been pretty useless with providing a clear answer on this - I have been told things such as it reduces mortgage term (how can this be when the mortgage contract clearly states recalculation of interest paid?), monthly payment stays the same but with the resulting monthly "overpayment" being used to reduce capital outstanding further (wouldn't this in effect mean that they are turning my interest-only mortgage to a repayment mortgage?), and other such varying responses.

Can anybody clearly explain what has Clydesdale done with my GBP 7,000 lump sum repayment??? And why hasn't my monthly interest cost reduced as a result of the repayment? Have they just taken my money and are making use of it to their own advantage despite the clearly stated mortgage contract terms??? Thanks very much in advance for any advice / experiences.

Thrugelmir

The payment made will have reduced your mortgage balance and therefore will reduce the amount of interest you pay on an ongoing basis.

I suspect that the confusion has arisen. As you are continuing to pay the same amount every month. This is because your lender will not recalculate this unless an event such as a change in interest rate occurs. Very much standard across lenders these days.

So there's no need to concern yourself. As by paying at the higher level still your mortgage will be cleared even quicker.

Changing the actual mortgage term is a contractual change. So won't be effected unless you actually request it and pay the appropriate fee. However there's no need to do this as there's no penalty for settling your mortgage early. Unless you are tied into a particular product at the time where an early repayment charge is contractually payable.