Mortgage Overpayment

hanb

Hi all,


This could be a stupid question where we've misunderstood but wanted to ask:


We have a mortgage on a fixed 5 year deal with [EMAIL="H@lif@x"]H@lif@x[/EMAIL]. We can overpay 10% of the balance on 1 Jan each calendar year. I just called to check what that was to see whether we'd reached it or could OP any more. I was told we'd paid £15 under the 10% but they'd now have to recalculate our monthly payments because they would need to be lower to ensure we didn't go over 10% and end up getting charged.


Am I being stupid or does this defeat the purpose of OP'ing 10%? We expected our monthly amount to remain the same throughout the year and to be able to simply pay 10% of the balance at the start of each year so that by the time the fix deal ends, we'll have made much more of a dent and re-mortgage for a shorter term. But if they're now going to reduce our monthly payments to avoid OP fees by taking in to account the OP made, it won't make that dent? We don't want to pay less each month and not knock off the interest/time we thought we were but I don't know what we can do now?


All I can see on their website is the fact that we can OP 10% but if we go over that we'll be charged fees on the amount we go over.


Again, really sorry if I'm just being dim!

hanb

Just to add, I called them back and was told I was mis-informed. It's only if the full 10% is paid they have to recalculate but because we were £15 under they've cancelled the request and so we don't have to change anything at all. So hopefully as long we pay slightly under the 10% each year, we won't need to change anything until the end of our fix.


Although it seems misleading when they state the below as well as giving you a 10% allowance. Surely we should be able to use the whole 10% and not have the below until the end of the fix when the interest changes and we'd be (hopefully!) moving to a new product with a larger reduction due to OP's.


"overpayments won’t automatically reduce your mortgage term or your monthly mortgage payment, but could save you money by reducing the amount of interest charged. When the next monthly payment recalculation happens, for example at an interest rate change, the monthly payment will be calculated using the existing remaining term of the mortgage. If you want to reduce your term you will need to speak to one of our mortgage advisers to discuss your options."


Anyway, it's resolved for now but thought I'd leave this up for anyone else who might have the same issue and to see if anyone wanted to point out what I'm missing

getmore4less

We don't want to pay less each month and not knock off the interest/time we thought we were

you obviously have not done the calculations because it actually makes a small difference.

look at a generic example £100k @ 3% over 25 years

After 1 year

1.£100k @ 3% £474pm £97,275 - £10k
2. £90k @ 3% £474pm £86,971
3. £90k @ 3% £427pm £87,542 - (£474-£427)*12 = £564

net position after 1 year
1. £87275
2. £86971
3. £86978

The £10k overpayment knocks £304(but you loose any interest you could have got on the £10k) extra off the balance with the payment staying the same.
Having the payment adjusted costs £7 extra over the year(less any interest you can make on the difference in payment).

Thrugelmir

hanb wrote: »

Am I being stupid or does this defeat the purpose of OP'ing 10%? We expected our monthly amount to remain the same throughout the year and to be able to simply pay 10% of the balance at the start of each year so that by the time the fix deal ends, we'll have made much more of a dent and re-mortgage for a shorter term.

Your lender will calculate the payments due for the year ahead based on the account balance at the beginning of the year. By reducing the balance. The amount of interest you will be charged will be reduced. As is calculated daily and charged monthly. Resulting in a payment which exceeds your allowance.

Lilla_D

Just to add, you can make overpayments any time during the year, it doesn't have to be once a year.
Just make sure that the total overpayments made during the year are not exceeding 10% of the balance at the start of that year.