10% overpayment query

Westminster

Hi

Just a quickie.

I currently have a tracking offset and I'm considering taking a long term fixed in the coming months.

How exactly does the penalty free 10% overpayment on those types of mortgages typically work.

Is it 10% of the original loan (for example a 300k mortgage) so you could knock 30k off each year. Or is it some kind of taper where you can only over pay by 10% of the balance remaining on each anniversary?

Cheers

anna42hmr

Westminster wrote: »

Hi

Just a quickie.

I currently have a tracking offset and I'm considering taking a long term fixed in the coming months.

How exactly does the penalty free 10% overpayment on those types of mortgages typically work.

Is it 10% of the original loan (for example a 300k mortgage) so you could knock 30k off each year. Or is it some kind of taper where you can only over pay by 10% of the balance remaining on each anniversary?

Cheers

I believe it can vary depending on mortgage provider, but for an example mine (Tsb) calculates it as follows:

First period is 10 % of the original mortgage, then this 10% allowance resets on 1 January each year ( so if for example mortgage took out in April, the window for first period is April to December 31st. Ther after it is January 1st to December 31st).

The amount allowable is reset each 1january based on remaining debt as at that new year start. (And not the original loan) therefore assuming no extra lending taken the overpayments allowed will reduce each year.

Westminster

Yeah I was worried it might be that way around.

Anyone reading this know how coventry apply this rule?

amnblog

They work on 10% of the balance at 1st January each year.


Are you considering this in view of the new 2.39% 10 year fixed rate?

Westminster

Thanks.

Yes that was what triggered the question.

amnblog

I've not see the full details for the new rate yet. They may restrict overpayment to 5%.

By definition an overpayment of 10% and a mortgage will not last 10 years.

Westminster

It says this on the summary:

ERC
5.00% of the balance repaid until 30.09.18, then 3.00% until 30.09.21, then 1.00% until 30.09.26

You can repay up to 10% of the capital p.a. without an early repayment charge.

I would/could happily pay the mortgage back over 10 years (if my situation remains the same or improves) if that were possible, but I would still go for a 25 year product to build some fat in incase life happens and I couldn't meet the contractual payments for a 10 year product for any reason.

It will be interesting to see what other products hit the market in the coming months.