Halifax overpayment

kerrjp

Hi guys,

I could really do with some advice as I am getting more and more confused. I currently have a large mortgage which as of a few days ago was £347,588. This is fixed for the next 18 months at 2.49%, after looking at investing and saving and this forum I decided to start overpaying the mortgage. I planned to overpay by £1400 a month (basically doubling the amount I pay towards the mortgage).

I phoned up Halifax and made my first overpayment, however I requested that I wanted to keep my monthly payment the same but have the overpayment reduce the term. My understanding is that reducing the term saves on the interest that would have been paid over the full term. I was informed that I would have to phone after the money had been taken from my account and they could then setup for the overpayment to reduce the term.

I called this morning to arrange this and have now been told that to have the term reduced would require a review process and this would have to be done every time I overpay and without this any overpayment will simply reduce my total balance. I have since called again and have been told i can opt to have my monthly payment remain the same regardless of overpayments but cannot reduce the term without a formal review.

I am now very confused, can someone help me understand as to whether it is still worth overpaying if I cannot actually reduce the mortgage term?

Thanks in advance

azari_2

Surely if you overpay every month the term automatically gets reduced because at some point you're not going to owe any money? I suspect they are saying you can't reduce your mortgage term without a formal review e.g turn a 25 year mortgage to a 20 year mortgage.

However overpaying will ultimately mean your term will finish earlier.

Gizmo247

The "term" just defines the point in time at which the mortgage principle must be paid in full. If you overpay the mortgage without changing the term you will just get to that point earlier thereby saving interest.

If you try to change the term after each over payment then you are maintaining the bank's loan risk but over a shorter time i.e. you are committed to paying the same level to the mortgage with less time to default. If you do not change the term then the bank's loan risk generally reduces i.e. they have more of your money earlier and although you are at risk of defaulting for longer, your required payment to meet the term is much-less.

The only time a reduction in the term is beneficial is when you are limited to the amount of over payment i.e. 10%. Without a reduction in the term the amount of allowable over payment will diminish; a bit like the frog that jumps half-way towards a wall.

juststuff123

Hi Kerrjp.


I have a mortgage where the OP's don't change the mortgage term or monthly payments. I like it like that, It feels like I have a bit of a safety net. Like a cushion of time that I have to fall back on should I need it. You won't be worse off using a scheme like this as apposed to having the mortgage term officially reduced.


I hope this makes you feel a bit better & a bit less confused about your situation.

CathT

I used to have a Hali3ax mortgage and made OPs as you described. I guess you could ask them to clarify the OP is coming off the capital balance?
Are you able to view online, this may aid with checking it's credited properly.

Good luck with reducing your mortgage.