Overpayments and how they are calculated.

murphydog999

I know, I know, another overpayment question!

Sorry, but I'm having a bit of an issue with Lloyds and the way our overpayments have been applied to our account. We are allowed 10% and are 4yrs into a 5 yr fix, I've been overpaying smallish amounts £50-300 until recently when some of them have been £1000.

The small amounts are classed as 'bank payments' and the £1000 as 'capital repayments' - I get sent a letter saying thank you for your 'capital repayment.' So that means they are applied in different ways?

It sounds like the 'capital amounts' come directly off the amount borrowed, and the smaller 'bank payments' come off the whole pot. Is this right?

If so, how does that impact on the way the whole amount is calculated? I have been getting contradictory letters and remarks for 6 weeks now and am getting nowhere.

T.I.A

[Deleted User]

The 'amount borrowed' and 'the whole pot' are the same thing.

What happens to your balance each time you make a payment? Are they all being applied at the time of payment?

AnotherJoe

The likely difference is that some will result in the amount you need to repay each month being reduced (you may see this on your DD's) and some wont, but will result in the term being shortened.
As long as you dont allow reduced direct debits to affect what you repay overall, it makes no difference and even if you dont account for the reduction it will only make a marginal difference unless the term is very short or the amount owed very small.

murphydog999

Deleted_User wrote: »

The 'amount borrowed' and 'the whole pot' are the same thing.

What happens to your balance each time you make a payment? Are they all being applied at the time of payment?

Yes. So why make the differential then?

ViolaLass

Has your normal monthly payment changed?

murphydog999

yes, £10 every month since October, although instructed to keep it the same.

ViolaLass

murphydog999 wrote: »

yes, £10 every month since October, although instructed to keep it the same.

That is probably linked to your question.

Nationwide automatically treats overpayments above £500 differently to those below £500 unless you tell them not to. Perhaps Lloyds does the same.

AnotherJoe

murphydog999 wrote: »

yes, £10 every month since October, although instructed to keep it the same.

My bank did the same,would "remember" what to do for a few months then revert back. i just gave up and overpaid the difference in the end as well, eg a tenner in your case (though then it will go to £10.03p etc etc )

chamelion

ViolaLass wrote: »

That is probably linked to your question.

Nationwide automatically treats overpayments above £500 differently to those below £500 unless you tell them not to. Perhaps Lloyds does the same.

can you clarify this? I'm in a similar boat of trying to work out overpayments...

Basically if I'm paying a nice round £1000 a month on a 25 year mortgage, but opt to pay £1100, from what I can see Nationwide would reduce what they're "expecting" from me by some small amount - let's say £995. But, I continue to pay £1000, so I terminate the mortgage x many months early.

By default it looks like Nationwide at least reduces the monthly payment, but you can call and explicitly ask for reduced term - which is not recommended.

Right?

So what do you mean by above? What if I pay back £2000 a month instead of £1000 - because it's over £500 is it treated differently, and if so how? With my above comment i'd expect NW to reduce monthly to £980 (or whatever the figure is - you get the picture) and I can continue to pay £1000 to terminate the mortgage nice and early.

ViolaLass

chamelion wrote: »

can you clarify this? I'm in a similar boat of trying to work out overpayments...

Basically if I'm paying a nice round £1000 a month on a 25 year mortgage, but opt to pay £1100, from what I can see Nationwide would reduce what they're "expecting" from me by some small amount - let's say £995. But, I continue to pay £1000, so I terminate the mortgage x many months early.

By default it looks like Nationwide at least reduces the monthly payment, but you can call and explicitly ask for reduced term - which is not recommended.

Right?

So what do you mean by above? What if I pay back £2000 a month instead of £1000 - because it's over £500 is it treated differently, and if so how? With my above comment i'd expect NW to reduce monthly to £980 (or whatever the figure is - you get the picture) and I can continue to pay £1000 to terminate the mortgage nice and early.

Nationwide say "if you make an overpayment of under £500, we won't automatically reduce your monthly payment amount, however, your overall mortgage balance will be reduced immediately... If you have a capital repayment mortgage and make an overpayment of £500 or more, we'll automatically re-calculate your monthly payment."

So under £500, it just comes off what you owe, over £500 and it reduces what you owe AND they recalculate the monthly amount. Yes you can over-ride that but the OP hasn't so I'm guessing that's what happened with her/him/ze.

Also, if they change the monthly amount (to your hypothetical £980) and you continue to pay £1000 then you are overpaying by another £20 each month, which doesn't matter UNLESS it puts you over the total overpayment amount allowed for that year and causes you to be charged fees.

murphydog999

Lloyds used to be £500 before the change in D.D., I am advised (although the advisor wasn't aware of this) now it's £1000. So I could pay £999 without it changing - theoretically. What I can't do is pay £999 twice in one month, the payment change who still kick in.

My other option is, every month on the day the payment goes in phone the mortgage team and ask them to keep the D.D. the same. Slightly inconvenient and how long it would last for who knows.

My initial query refers to the answer that zx81 gave, however, the amount we borrowed was £150,000 (for example) not £150,000 plus the interest. So the 'whole pot' is different to the 'capital amount.' There are payments that go directly to the 'capital amount' and payments that come off the balance. Isn't there a difference??