Post Office Mortgage Overpayment

rev_henry

My mortgage allows limited overpayments on the usual terms for a fix.

I understand the usual options for overpaying are to either have the overpayment reduce the term as you go along, keeping the regular monthly payment the same, or to have the overpayment calculated to reduce your monthly payments. The bank favouring the latter and the customer the former of course.

When I last made an overpayment, I enquired about keeping payments the same and for the term to be reduced. However I was told if I wanted to do this I would have to request it each time, and it would have to be sent to the underwriters and I would be charged £60. Does this sound right or normal?
When I made the overpayment it reduced the remaining monthly payments by about £2 a month. So is overpaying in this way a complete waste of time if it'll just reduce my monthly payments? I don't want my monthly payment to go down, I want to overpay and ultimately reduce the term. Is this not possible with my mortgage?

ViolaLass

What does it say on the info you were given when you took out the mortgage?

TheShape

I wouldn't discount the benefit of over-payments reducing your monthly payment. Ultimately could be very useful if your income was reduced as you'd have less money to find to pay your mortgage.

Every over-payment reduces the interest you have to pay.

If your regular over-payments are reducing the monthly payment you can always keep adjusting your over-payment upwards. If your monthly payment drops by £2, increase your over-payment by £2. You'll find yourself making ever greater over-payments as you adjust the over-payment upwards to counter your falling regular payment. Ultimately you'll get to the point where you might have a mortgage payment of £5 per month with 100 months remaining of the term. At that point a payment of £500 would end your mortgage 100 months early. Subject of course to any early repayment penalties.

xyz123

Thats what post office do. Quite annoying.... But u will get used to it like we did. We are in 5th year of our fix so have done this many times. In long term it won't make a difference as long as you remortgage or renew the term at end of fix or tracker mortgage you have. All overpayments go towards paying capital. At end of ur term u will have the option to switch to a different length of mortgage if u want.

Thrugelmir

rev_henry wrote: »

When I last made an overpayment, I enquired about keeping payments the same and for the term to be reduced. However I was told if I wanted to do this I would have to request it each time, and it would have to be sent to the underwriters and I would be charged £60. Does this sound right or normal?

Yes. As you are requesting a change in contractual terms. Lenders have to cover themselves when ageeing to such changes.

When I made the overpayment it reduced the remaining monthly payments by about £2 a month.

Then up the over payment you make every month. As simple as that.

rev_henry

Thanks all, think I understand it a little more now. In the mortgage docs there is something about making an overpayment of at least £500 will automatically recalculate payments over the rest of the term, but anything under £500 will be 'added to your account'. When I spoke to them about this over the phone I was advised this meant it would just accrue until it hit £500, at which point it would recalculate as above.
However, if I make an overpayment of at least £500, they recalculate, surely this doesn't effectively make any difference to the length of the mortgage term as the remaining sum is recalculated over the remaining years? So my only option is, when overpaying, to also set up a standing order to bring the payment up to what it was pre overpayment. Otherwise there is no point. Is that right?

glosoli

rev_henry wrote: »

Thanks all, think I understand it a little more now. In the mortgage docs there is something about making an overpayment of at least £500 will automatically recalculate payments over the rest of the term, but anything under £500 will be 'added to your account'. When I spoke to them about this over the phone I was advised this meant it would just accrue until it hit £500, at which point it would recalculate as above.
However, if I make an overpayment of at least £500, they recalculate, surely this doesn't effectively make any difference to the length of the mortgage term as the remaining sum is recalculated over the remaining years? So my only option is, when overpaying, to also set up a standing order to bring the payment up to what it was pre overpayment. Otherwise there is no point. Is that right?

You only pay interest on the capital balance outstanding, so in that sense it is always beneficial to overpay. However you are correct in saying that if you are looking for the mortgage to be paid off quicker, or by a particular date, you will need to overpay more than the minimum required, otherwise the reduced repayments will always stretch it out to the contractual end date of the mortgage.

xyz123

rev_henry wrote: »

Thanks. So my only option is, when overpaying, to also set up a standing order to bring the payment up to what it was pre overpayment. Otherwise there is no point. Is that right?

U can obviously do that but that will reduce mortgage term and they will charge you I think £60 everyone you change mortgage term as admin fee.

Its ur choice but as I mentioned earlier as long as you do following two, it will not make any practical difference. Not ideal, yes bit that's what the terms and conditions say.
1. Save any reduced monthly payments and put it towards next overpayment pot
2. Remortgage at end of the initial deal period