Lender reduced monthly payment after overpayment within allowance

PaulC5

I have just made an overpayment of my 10% annual allowance last week.

I have now received a letter telling me they have reduced my monthly payment as from September but I am still in a fixed contract till 1st January.

Are they allowed to do this?

benten69

That's normal. You have overpaid, so the interest is reduced over the same term, so they reduce your payments. Read your lenders T&C's. If you wanted to reduce the term instead of the payments you normally need to tell them prior to making the overpayments.

Also, there is nothing to stop you from still overpaying. The 10% overpayment limit is for the original amount borrowed. So if you borrowed 150,000 then every year you can overpay 15,000 regardless of whatever else goes on.

PaulC5

benten69 wrote: »

Also, there is nothing to stop you from still overpaying. The 10% overpayment limit is for the original amount borrowed. So if you borrowed 150,000 then every year you can overpay 15,000 regardless of whatever else goes on.

The 10% annual allowance is based on the remaining balance so what they have done is reduced the amount we can pay off the mortgage each year because we have made an overpayment within there rules.

The fixed term is to prevent the monthly payment from going up, but surely it works in the opposite way that they can't reduce it as well?

Fixed is fixed in my dictionary otherwise it wouldn't be a fixed payment!

Twopints

Isn't it a fixed interest rate rather than a fixed payment amount? So if the amount owed is less, but the rate the same, then the payment amount reduces.

getmore4less

It is the interest rate that is fixed not the payment.

Check if the lender has an option to fix the payment as well, some do some don't.

benten69

PaulC5 wrote: »

The 10% annual allowance is based on the remaining balance

Are you sure about that? The ones I have seen are 10% of the original balance during the fixed term, then no overpayment limit once the fixed term is finished.

PaulC5

benten69 wrote: »

Are you sure about that? The ones I have seen are 10% of the original balance during the fixed term, then no overpayment limit once the fixed term is finished.

Yes I am sure, I have the letter in front of me now and i quote:
"As part of the Terms and Conditions of your rate, you are entitled to repay 10% of the balance per annum without an Early Repayment Charge being applied"

TravelBugHappy

You just have to call them and tell them that you want your payments to remain the same. No point posting on a forum before discussing with your bank as I'm sure they will do that for you. Your payments were probably recalculated automatically by a computer rather than a person

SG27

PaulC5 wrote: »

Yes I am sure, I have the letter in front of me now and i quote:
"As part of the Terms and Conditions of your rate, you are entitled to repay 10% of the balance per annum without an Early Repayment Charge being applied"

That's 10% of the the outstanding balance not of the original balance.

jaxkesa

SG27 wrote: »

That's 10% of the the outstanding balance not of the original balance.

That's what the OP is saying is it not?

It varies by lender as I understand it. In the OP's case it is based on the outstanding balance.

Thrugelmir

jaxkesa wrote: »

That's what the OP is saying is it not?

It varies by lender as I understand it. In the OP's case it is based on the outstanding balance.

If an overpayment is made up to the set threshold. Then the standard repayment has to be recalculated. To ensure that the threshold isn't breached. Otherwise it's a back door of reducing the term and incurring no penalties while the mortgage is within particular product terms.