overpayment - please explain this to me!

xyz123

hi


I have a 5 year fixed mortgage taken out in April 2012 with post office (bank of Ireland) and I have been putting extra money in mortgage (whenever I can) through overpayments over the phone by debit card.


Post office always reduce my monthly outgoings and when in the past i have verbally questioned them they said its the only option i have!


Now i read this in MArtin's guide today:


"If your mortgage provider alters your repayments to keep the term the same, although it will boost your monthly disposable income, you won't save on your interest payments, and the lender will earn more. So be sure to tell it to keep your monthly repayments fixed."


Few questions if someone can help please:


1. Is it standard for mortgage lenders not to offer the choice (i am asking as my fixed deal will expire in March next year so i can be better informed as to who to go with!)


2. Is this something that should be clearly written in my mortgage offer as i have a copy and i am unable to find anything which explicitly states that on overpayment the term will not be reduced!


3. I understand that when i remortgage or change provider after ending of fixed deal, i will look to reduce the term. have I actually lost out by having a provider not offering to reduce the term for last 5 years?


Thanks

Thrugelmir

Every time you make an overpayment BOI recalculates the amount required to clear your debt by the end of the mortgage term. Simply increase the amount you overpay by to compensate. By reducing the debt owed you'll pay less interest.

To alter the mortgage term requires a contractual change and imposes a requirement on the lender to perform an affordability check.

Lower fixed payments may be of benefit in the future. In that they give you flexibility.

xyz123

Bump if any mortgage advisers can provide any more information..

LeadFarmer

If your monthly payments are gradually reducing due to the overpayments your making, then just tell the mortgage provider that you don't want them to fall, instead you want to keep your payments at the original higher amount. That way you are constantly overpaying each month, but without paying any more, if that makes sense. Each time your required monthly payments fall, you just keep paying the original amount.

I overpay my mortgage by about £250/month. Despite my monthly mortgage payment being about £500, I have a fixed direct debit for £750 to be paid to my mortgage provider each month. If things remain constant then my mortgage will be paid off at 17yrs instead of 25yrs.

I spoke to my mortgage provider about reducing the mortgage term but they suggested I left it at the standard 25 yrs. There reason being if I officially reduced it to say 17yrs then I would need to pay £750 every month, whereas currently I only need to pay £500. If my circumstances change and I suddenly need to reduce my outgoings then I can simply reduce my monthly direct debit, rather than not being able to pay the £750 as this would be classed as a missed payment and I would be penalised.

Better to leave the term at 25yrs, and pay it off at 17yrs than to actually reduce the term to 17yrs.

Dandytf

LeadFarmer wrote: »

If your monthly payments are gradually reducing due to the overpayments your making, then just tell the mortgage provider that you don't want them to fall, instead you want to keep your payments at the original higher amount. That way you are constantly overpaying each month, but without paying any more, if that makes sense. Each time your required monthly payments fall, you just keep paying the original amount.

I overpay my mortgage by about £250/month. Despite my monthly mortgage payment being about £500, I have a fixed direct debit for £750 to be paid to my mortgage provider each month. If things remain constant then my mortgage will be paid off at 17yrs instead of 25yrs.

I spoke to my mortgage provider about reducing the mortgage term but they suggested I left it at the standard 25 yrs. There reason being if I officially reduced it to say 17yrs then I would need to pay £750 every month, whereas currently I only need to pay £500. If my circumstances change and I suddenly need to reduce my outgoings then I can simply reduce my monthly direct debit, rather than not being able to pay the £750 as this would be classed as a missed payment and I would be penalised.

Better to leave the term at 25yrs, and pay it off at 17yrs than to actually reduce the term to 17yrs.

Thanks there was me concerned as I cannot reduce 25 yrs term when 5 yrs fix finishes next summer, I'll just choose an existing customer fix next year and continue to leave dd +60 (400 -mtg currently 341).

My yearly paper mtg statement is my motivation-reduced interest is certainly noticeable difference.

LeadFarmer

Also, when you get close to paying your mortgage off, depending on the interest rates you could consider keeping the mortgage running as it could be a cheap source of money for any needed purchases.