Mortgage Overpayments

TheShape

Hi all,

Looking for some advice please.

In September 2015 I remortgaged my property. I originally owned the property jointly with my father. We had approx 8 years remaining on a lifetime tracker repayment mortgage @ 2.49% (BASE + 1.99%), paying approx £866 p/m. Following my father's death I inherited the property and remortgaged in my name. I had always paid £600 p/m towards the mortgage and felt that this was affordable. However, I hit on the idea that by extending the mortgage term to the maximum permitted, I could lower my monthly payments and so guard against possible future falls in income. I therefore remortgaged for 30 years on a lifetime tracker @ BASE + 1.49%, paying £278 p/m with the idea of overpaying £300 approx per month, every month if possible but also being able to miss overpayments if the money was needed for something else.

That's the background, now to the point. The HSBC overpayment calculator says that regular overpayments reduce the term and adhoc overpayments reduce the standard monthly payment. Ideally, I would like to pay off my mortgage more quickly but am also happy for my standard monthly payment to reduce as my mortgage would be easier to afford in the future if my income were to fall. Surely, if I manage to overpay £300 each month for 10 months of every year I will pay the mortgage off quicker. Is it the case that by 'adhoc', HSBC means a one-off payment and then continuing to pay only the newly reduced monthly payment?

Thanks in advance for any replies.

getmore4less

Cost and true term of a mortage is determined by the payments not the contractual term.

Can't anwser the actual question but you should be able to have HSBC reclaculate the payment for contractual term at any(some)points if you need the payment lowered to reflect the overpayments.

AnotherJoe

You'll need to ask HSBC but all this really means is what do they count as a an hoc amid what is regular? My guess would be, if you set up a standing order for the overpayments, that will count as ad hoc, but if you direct them to alter the direct debit to pay a certain amount (which includes an overpayment element) that will count as regular.

End of the day it doesn't really matter, it will still get paid off as quickly it's just in the standing order case they will keep adjusting the amount they will take by DD to keep the term the same and so you may want to occasionally increase the SO.

steeeb

Are there any early repayment charges and are you restricted to only overpaying 10% each year?

TheShape

I can make unlimited overpayments and no early repayment fees.

TheShape

AnotherJoe wrote: »

You'll need to ask HSBC but all this really means is what do they count as a an hoc amid what is regular? My guess would be, if you set up a standing order for the overpayments, that will count as ad hoc, but if you direct them to alter the direct debit to pay a certain amount (which includes an overpayment element) that will count as regular.

End of the day it doesn't really matter, it will still get paid off as quickly it's just in the standing order case they will keep adjusting the amount they will take by DD to keep the term the same and so you may want to occasionally increase the SO.

Thinking about it more, what you've said is the answer. I think that a regular overpayment means getting them to take, for example, £600 p/m each and every month. Over time my standard monthly payment would reduce, in effect increasing the amount of my overpayment and therefore also reducing the term.

If I were to make, for example, a one off payment of £2500, they'd reduce my monthly payment by £10 per month. If I didn't then increase my monthly payments the term would remain at 30 years at reduced monthly cost.

This actually works better for me than reducing the term because my required mortgage payments will reduce over time making monthly repayments more affordable in the event of a reduction of future income.