Overpayment help please

M5captainmac

Hi all
Long time lurker but first time poster so be gentle:D

Ok so I have been lucky enough to get a mortgage offer from Natwest for 322000 fixed for two years at 3.38%.

Now about three months after completion I should be in the fortunate position to pay 10% as a lump sum over payment. Can anyone advise me how this will affect the monthly mortgage payment?

I'm assuming that if I continuted to pay the quoted monthly payment in the offer I'd be effectively overpaying more than the allowed 10% or have I got how it works wrong? I don't want to risk a breach and then ERC charges applying.

Would really like to know as I'm attempting to get the mortgage paid off in 15 years instead of the term of 29 years that I applied for. My thinking being that when I come to refix after the two years I'll have a better LTV available to me.

Thanks in advance :T

Andy_St

Most mortgage companies from my research seem to allow 10% overpayment of the balance per year. No idea if yours does, it should say somewhere in the paperwork?

M5captainmac

Hi Andy yes it allows 10% overpayments in any year.

So by my reckoning I could lump sum £32200 plus pay my monthly payment (as per the offer) of £1452.90 without penalty. I'm just wondering if that's how it works or will they try and reduce my monthly payment? I've never been in the position before where I could actually reach the 10% limit and I don't want to breach it.

Can anyone confirm if I'm correct?

dimbo61

With you paying such a large amount in one go I am sure they will recalculate your monthly mortgage payment and reduce the amount you pay each month.
You can still overpay by 10% next year and hopefully get a much better LTV in 2 years.
Check with the lender !

pete-20-11

Ask natwest if you can overpay AND reduce the term, not the monthly payment.

M5captainmac

Thanks for that dimbo61

I will check before I make the overpayment. I won't be in the position next year to hit the 10% overpayment, but I was hoping to pay the 10% this year but still keep the same payments, and save my overpayments in a savings account (I can afford to save 500/month for overpayments) and then pay a lump sum next year while overpaying by 500 a month in year two.

I don't really want them dropping my monthly payment, as I specifically want to reduce my term by overpaying. Do you think there's a chance they would let me keep my payment at the agreed amount? As in effect I'm following there rules (I think) by only overpaying 10%

Purplesky_2

It's entirely up to you, but you could always save the money that you were 'due' the mortgage company in say a regular savings account, and not reduce the term. Then use it to overpay after the end of the fixed rate period.
Or maybe put it in a pension? If you can save £500 after a £1400 mortgage payment, you'll likely get a lot back in tax relief, since you're probably at least on a 40% tax band

It depends to some extent about the interest rate on your mortgage (What is that?) and your job security. 20-30 years is a long time and by not reducing the term you leave yourself options to 'fall back' to a much lower payment in the future without having to totally renegotiate the mortgage. In this case, you woul djust stop the overpayment?

A different perspective, but maybe something to think about?

M5captainmac

Thanks for that purple sky my mortgage rate is 3.38 fixed till June 2016. Your idea does give me a lot to think about. I'm pretty secure in my job (same company since I left school 21 years ago!) in that if I lost my job there is a shortage in the sector though I might be on less money I shouldn't be out of work long.

However my aim is to get the mortgage gone in 15 years, while fixing every two or so depending on rates. This is our forever home so until we downsize in our twilight years (effectively giving cash in retirement) my priority is to get it paid off.

Giving me loads to think over though! So thanks for that.

wannabeprudent

I am with NatWest and this is how they deal with overpayments

<£1,000 the term reduces and monthly payment stays same

>£1,000 and you get choice of reducing term or monthly payment

You can login into your online mortgage account with your account number, surname, DOB and postcode.

You can access the calculator which will give you impact of your overpayment in terms of reduced term or monthly payment

wannabeprudent

https://www.switch.natwest.com/SVRWeb/nwb/faces/login.jsp

M5captainmac

Thanks for that much appreciated!