Mortgage Overpaying

waterman3

I made a £5,000 lump sum overpayment recently. When I said that I wanted to also reduce the term, I was told I would have to call Halifax Mortgages and go through a review.

I did this and it transpired that, because my job is temporary, I'm not allowed to reduce the term (or monthly payments).

So I'm struggling to understand how the term and monthly repayments can stay exactly the same, even though the mortgage is now £5,000 less.

How can it take the same number of years to pay the mortgage off, if the mortgage is now £5,000 less. Surely, something has to change.

Spidernick

If you continue to make monthly payments based on the mortgage before the lump-sum payment then of course you will pay the mortgage off earlier, as you have paid off £5K of capital and the interest charged will reduce accordingly. I assume that is your plan and so you wouldn't really want the monthly payments to reduce.

waterman3

Yes, that's right. I wanted to reduce the term, rather than the monthly repayments.

So I don't understand why they're saying I can't reduce the term, when clearly the term IS reduced.

HappyMJ

waterman3 wrote: »

I made a £5,000 lump sum overpayment recently. When I said that I wanted to also reduce the term, I was told I would have to call Halifax Mortgages and go through a review.

I did this and it transpired that, because my job is temporary, I'm not allowed to reduce the term (or monthly payments).

So I'm struggling to understand how the term and monthly repayments can stay exactly the same, even though the mortgage is now £5,000 less.

How can it take the same number of years to pay the mortgage off, if the mortgage is now £5,000 less. Surely, something has to change.

I really wouldn't worry about it. You are now £5,000 overpaid on your mortgage and if your temporary job dries up you can ask for a payment holiday and it's likely that it will be approved.

By continuing to repay at the same rate as before you will pay it off many months sooner. The mortgage will still run to the original date agreed but you'll have no further payments to make,

What they'll probably do is when (if) rates increase when they recalculate what you need to pay they won't change your monthly payment upwards by much as they would have done if you hadn't made the additional repayment.

Thrugelmir

waterman3 wrote: »

Yes, that's right. I wanted to reduce the term, rather than the monthly repayments.

So I don't understand why they're saying I can't reduce the term, when clearly the term IS reduced.

Changing the term is a contractual amendment. Which would force the lender to apply the affordability rules under MMR. In processing the request. Given your employment status makes no sense to shorten the term.

As has already been said doesn't impact you in any event. As the mortgage will be simply be repaid quicker if you make overpayments.

Yorkie1

Basically, by formally reducing the term you are reducing your future flexibility. By making informal overpayments the effect is the same, as Thrugelmir says, but you are not tied into the shorter period and committed to future higher payments.

waterman3

Ok, thanks everyone for your help

getmore4less

Don't worry the payments decide how long your mortgage lasts not the contractual term.

The issue starts when your payments start to involve penalties.