Mortgage Overpayments

d70cw6

I recently remortgaged to Post Office (Bank of Ireland UK) and Im a little confused about overpayments. In my previous mortgage with Nationwide I was able to overpay and reduce the term of the mortgage hence shaving years off the final redemption date - per the terms of this new mortgage it seems that during the 3 year fix promotional term, whilst i can still overpay, there is no option to reduce the term but instead the standard monthly amount reduces by a few £s.

Im finding it really difficult to understand what (if any) difference this will mean in the total amount of ££ ill be paying out over:

a) the three year fix term (if I remortgage again then), or
b) the residual life of the mortgage if i was to just stay with Post Office until it's all repaid.

Basically by them not allowing me to reduce the term of my mortgage am i being "shafted" in some way?

Yours confused.

LydiaJ

Even if they won't reduce the official term of your mortgage, you can achieve much the same result by just paying more than the standard monthly amount. What they're doing is along the lines of the ludicrously small minimum payments on credit cards. If you follow the line of least resistance you end up paying stacks more than necessary but really not very much effort is required to pay more than the minimum each month and therefore end up much better off in the long run.

getmore4less

When it comes to payment and term

The term only determines your default/contractual payment.

How long your mortgage takes and costs is based only on how much you pay.

(Along with the rate and how much you borrow)

Although most think of 4 element to a mortgage, Amount, rate, payment, term only 3 actualy are needed to work out a mortgage the 4th can always be derived from the other 3.

d70cw6

hmmmm.

so if i just keep increasing my regular overpayment amount to match the reduction in the standard monthly that they keep recalculating to whenever I make an overpayment....... that will have exactly the same effect as if i had the option to keep my monthly mortgage amount the same and "reduce the term".?

(does that make sense?)

I just dont understand why they dont let me have the option to set my monthly DD to be £x amount over the standard monthly repayment and leave it as is!

LydiaJ

d70cw6 wrote: »

hmmmm.

so if i just keep increasing my regular overpayment amount to match the reduction in the standard monthly that they keep recalculating to whenever I make an overpayment....... that will have exactly the same effect as if i had the option to keep my monthly mortgage amount the same and "reduce the term".?

(does that make sense?)

I just dont understand why they dont let me have the option to set my monthly DD to be £x amount over the standard monthly repayment and leave it as is!

You can ask them to. They might say yes.

It's in their interests to design things so that the way that leads to you paying them lots of interest is easy, and the way that saves you interest requires more effort on your part. So they may say no. Lenders differ, and I don't know anything specific about yours. I think some MFWs have set up standing orders instead of DDs so that they are in control, but I'm not sure about that, and if so then I'm afraid I don't know which lenders allow it.

midnight_child

d70cw6 wrote: »

hmmmm.

so if i just keep increasing my regular overpayment amount to match the reduction in the standard monthly that they keep recalculating to whenever I make an overpayment....... that will have exactly the same effect as if i had the option to keep my monthly mortgage amount the same and "reduce the term".?

(does that make sense?)

This makes perfect sense, and yes that is correct. I would just ask them to clarify exactly what are the overpayment limits (if any), so you dont get an unexpected early repayment charge.

LydiaJ

midnight_child wrote: »

This makes perfect sense, and yes that is correct. I would just ask them to clarify exactly what are the overpayment limits (if any), so you dont get an unexpected early repayment charge.

Good point, midnight child.

BoxerfanUK

d70cw6 wrote: »

hmmmm.

so if i just keep increasing my regular overpayment amount to match the reduction in the standard monthly that they keep recalculating to whenever I make an overpayment....... that will have exactly the same effect as if i had the option to keep my monthly mortgage amount the same and "reduce the term".?

(does that make sense?)

I just dont understand why they dont let me have the option to set my monthly DD to be £x amount over the standard monthly repayment and leave it as is!

We overpay every month and do exactly that. Every time we make an overpayment we reduce the monthly amount as opposed to reducing the term. It has exactly the same effect as reducing the term in eroding the debt earlier but we prefer it this way as it gives us more control over the loan.


We now have a 3 year fix with Tesco @ 2.59% and very happy with the way its going. We switched to Tesco a few months ago after a 10 year fix with the Leeds B/S.


When we were with the Leeds it was a bit of a pain to be honest as the interest on the loan was calculated annually. In order to get the interest recalculated earlier, each overpayment had to be at least £1000, any lower and the interest on the OP wouldn't be recalculated until year end either!


To get around it, every 2 months when we'd saved over 1K for the OP I would phone them up and make the OP, each time I had to tell them that I wanted the monthly payment to come down and the term to remain the same. What I would then do was, however much the monthly payment came down by, I would add that amount onto the next OP, and so on and so on.


It gave us more control over the loan because as the monthly repayments were coming down the OP's were going up which meant that if ever we were to hit a sticky patch with finances the monthly repayment over time was becoming much lower and we could always suspend the OP's if we ever needed to. Luckily we've never needed to so far and always keep up the OP's.


Now we are with Tesco it is so much easier. Firstly they allow 20% OP's without penalty, whereas the Leeds only allowed 10%.


Also, I now have a DD set up to include the OP and although Tesco automatically reduce the monthly payment, they still take the same total amount, so effectively THEY are reducing my monthly payment whilst at the same time THEY are INCREASING my OP's automatically.


I can also view our outstanding balance online at any time which I could not do with the Leeds.


If I want to increase the OP even further in a given month I can just phone them up and instruct them to increase the DD that month. Example, Every Feb and March when the council tax doesn't go out I divert the amounts to add to the OP for those months.


Hope this is of help and makes sense.