Santander - overpayment query

cgk1

My fixed term mortgage with Santander allow the standard 10% per year overpayment. However when I rang this morning to discuss this, I was told that I'd have to reduce the term (don't want to do this) or they would reduce the monthly payment ?

Any these my only options? would I be better off doing a lump sum payment once a year?

cgk1

Nobody any advice on this?

I'm better doing the overpayment rather than reducing term right (due to the flexibility).

minimike2

I am not sure what you are getting at?

When you make an overpayment you can either reduce the term - i.e carry on paying the same and this will mean the mortgage will be paid off faster, or you can keep the term the same and pay a reduced amount each month to reflect that less interest is being charged.

It has to be one or the other?

Some lenders apply it as a "pre payment" so the term wont actually technically reduce until it gets applied as a "part redemption" - Usually this can be done on request or after a period of time which the lender dictates. I don't know if Santander do this or not, but from what you say it doesn't sound like it. Usually it is on mortgages with a borrow back option.

Reducing the term will make you better off in the long run as you will repay the mortgage quicker and therefore have lower interest costs.

Assuming your interest is calculated daily you are better off paying more as you go along to make the most of the immediate reduction. If your interest is calculated annually then best to pay just before the anniversary and put the money into an interest bearing account until that time.

cgk1

Thanks for that -

"Reducing the term will make you better off in the long run as you will repay the mortgage quicker and therefore have lower interest costs."

Isn't the issue with that that I don't have the flexibility to stop the overpayment (I was going to paying an extra £500 a month).

kingstreet

They aren't going to reduce the term from eg 30 years to 20 as you will make future overpayments; they will reduce the term by a month or two each time your overpayment is received.

cgk1

Thank you - this hadn't been clear in previous posts I could find here about the topic.

frazell

What I have done with my overpayments is applied to reduce the monthly payments and keep the term the same. The thinking behind this is that it makes your mortgage that little bit more affordable with each overpayment. If you fall on hard times then you will have reduced your monthly payments/outgoings.


Each month my payment reduces by approx. £6, so each month I increase my standing order by the same amount for the next months payment, that way you are compounding the overpayment.


Since I've been overpaying (1 year now) my monthly mortgage payments have reduced from £1780 to £1716 as of this month. As they say.... every little helps.


This might help;


http://www.moneysavingexpert.com/news/mortgages/2015/03/decrease-the-term-or-overpay-my-mortgage-martin-lewis-answers


The article does say that you wont get the same interest saving effect doing it this way, it just depends what your needs/priorities are.

cgk1

"so each month I increase my standing order"

Do you have to write to them every month?

frazell

No, once they have your instructions as to what they should do with your payment you can make them whenever you like.

Yorkie1

frazell wrote: »

What I have done with my overpayments is applied to reduce the monthly payments and keep the term the same. The thinking behind this is that it makes your mortgage that little bit more affordable with each overpayment. If you fall on hard times then you will have reduced your monthly payments/outgoings.


Each month my payment reduces by approx. £6, so each month I increase my standing order by the same amount for the next months payment, that way you are compounding the overpayment.


Since I've been overpaying (1 year now) my monthly mortgage payments have reduced from £1780 to £1716 as of this month. As they say.... every little helps.


This might help;


http://www.moneysavingexpert.com/news/mortgages/2015/03/decrease-the-term-or-overpay-my-mortgage-martin-lewis-answers


The article does say that you wont get the same interest saving effect doing it this way, it just depends what your needs/priorities are.

cgk1 wrote: »

"so each month I increase my standing order"

Do you have to write to them every month?

I do exactly the same as Frazell, with Nationwide. I periodically review my online standing order overpayment so that the total amount I'm paying each month (i.e. repayment DD plus overpayment SO) remains about the same. However, I do make sure that I know the maximum I can repay per year is, so that as I increase my overpayments I don't breach the 10% limit and incur an early repayment charge.

frazell

Yorkie1, that's a very good point to make actually.


I have a running spreadsheet which shows what I've paid. It actually shows on the top of the sheet my 10% allowance so that I can quickly summate my overpayments and ensure I'm still within the threshold.