Should we ask lender to recalculate monthly payments after overpaying?

pinkteapot

We've had our mortgage for a couple of years and have overpaid fairly significantly. We're on a lifetime tracker with unlimited OPs. Our lender (HSBC) uses OPs to reduce the term, so our monthly repayment is the same as ever. Our mortgage was originally for 28 years and we're aiming to pay it off in half that time.

I'm trying to work out whether we should ask them to recalculate it, so that our monthly payment is lower. We think of the standard monthly payment as being like a minimum amount due on a credit card. We OP in most months.

If we have the monthly repayments recalculated, does it then cost us more in interest over the life?

Would the answer be the same if we reduced them but increased our OPs so our total spending on the mortgage each month stayed the same?

I'm completely confusing myself trying to do the maths!

Reasons to have it recalculated would be:

- lower minimum repayment just in case of change of circumstances/tight months

- in my head it seems like it would save money?? If the main repayment is less, is less of it interest and therefore our OP goes further?? I may be entirely wrong. :rotfl:

frazell

If you change to reduce the monthly payment but then adjust the overpayment each month by the difference then the end result is about the same.

The benefit is that it makes the monthly mortgage payment a little bit more affordable if you fall on hard times.

lee111s

Personally, I'd just keep the payments the same and keep smashing the OP's. If you fall on hard times then you can request the payments be adjusted to suit the term.

frazell

If you need to increase the term at a later date though to reduce your payments then I think most lenders require a fee to do so?

frazell

Also, and this is just me personally as I rebalance my payments on a reducing monthly mortgage.

If you are reviewing your finances on a monthly basis then I think you are more likely to overpay a little more each time.

As an example, I usually see what my rebalanced amount is and then increase it further to round it off to the nearest £10, or if I'm flush, £50 or £100.

Its just a psychological thing.

pinkteapot

I don't think lee111s was suggesting adjusting the term. Just suggesting leave the payments for now, and just have them adjusted later if we really need to, rather than doing it now.

Although I said our lender reduces the term, they don't really. Our official end date is still the same as it ever was, it's just that in reality the debt will be cleared earlier. If we have the payments revised, they'll recalculate the monthly payment based on the now lower balance spread over the remainder of the original term.

To give us a low minimum repayment - and given that we're disciplined OPers - we took out the max term possible (to retirement age) so we wouldn't be able to extend it anyway.

pinkteapot

frazell wrote: »

Its just a psychological thing.

And I think this is why I want to have the payments reduced - a psychological thing of reducing our monthly outgoings. Money spent on the standard repayment feels like a bill, money spent on OPing has the good feeling of putting money away instead of spending it!

But, as I said originally, if reducing the payments won't actually save us any interest over the life (or will actually increase it) then it's a bit pointless I suppose.

MisterMotivated

pinkteapot wrote: »

If we have the monthly repayments recalculated, does it then cost us more in interest over the life?

Would the answer be the same if we reduced them but increased our OPs so our total spending on the mortgage each month stayed the same?

I'm completely confusing myself trying to do the maths!

Reasons to have it recalculated would be:

- lower minimum repayment just in case of change of circumstances/tight months

- in my head it seems like it would save money?? If the main repayment is less, is less of it interest and therefore our OP goes further?? I may be entirely wrong. :rotfl:

The interest charged each month will still be based on a percentage of the outstanding capital; by reducing the monthly payment, you'll pay off less capital each month as part of that. Generally, the longer the term, the more interest you'll pay, though if you're OP'ing each month it probably won't make much difference overall.

I'd be inclined to keep the payments as they are and continue to reduce the term, otherwise you'd have to keep adjusting your overpayments so that you're paying off the same amount of capital each month.

Does your mortgage have any sort of borrow-back facility for overpayments if you get into difficulty? Or if that happened, could you reduce the monthly payments at that point?

pinkteapot

It wouldn't hurt if we had to adjust the amount of our OPs as we make them manually anyway (not via SO/DD or anything else regular). With HSBC, you just transfer money from a current/savings account to the mortgage account, just like any internal account transfer.

I'm always paranoid when transferring money to savings that I'll accidentally click on the mortgage instead, as nope, no borrow-back facility - once it's transferred to the mortgage it's gone!

What we do at the moment is transfer a set amount to the mortgage as soon as we get paid. Then, at the end of the month, if we've got any leftover spends they also get transferred as a second OP.

Yorkie1

frazell wrote: »

If you change to reduce the monthly payment but then adjust the overpayment each month by the difference then the end result is about the same.

The benefit is that it makes the monthly mortgage payment a little bit more affordable if you fall on hard times.

This is what I do, because if my circumstances change for the worse at any time then I'm not reliant on my lender's discretion extend the term again.

I reckon my O/Ps reduce the monthly payment by about £4 per month, so I just recalculate my O/P level every few months; no need to do it every month if I don't feel like it.

I use locoblade's spreadsheet from this forum to calculate when I'll be paid off, so that provides the motivation and psychological boost if I need the fix!