Offset Mortgage extra payments oddity

rjm2k1

I've found a strange thing happening with my Barclays/Woolwich offset mortgage and wondered if anyone else had come across the same thing.

I re-mortgaged (say for 100k) to free up some money for something which didn't happen, the released money (say 50k) has remained in the offset account and therefore reduced the monthly payment by reducing the amount of interest owed.

Since I wasn't going to use the money for what I intended and I don't like a big pile of money sitting around in my online banking I decided to use the make extra payments facility to transfer the money from the offset into the mortgage, reducing the balance owed. Each time I have done this the monthly payment amount has INCREASED, now that I've gone back and checked, it's actually doubled over 3 payments even though there is no net change in the balance between the amount owed and the amount offset, that's remained constant at say 50k, but the actual amount owed and the amount offset have both decreased. Speaking to the company it somehow seems that they haven't re-calculated the balance owed when working how much interest to charge, so even though say I've payed off 50k, they are still including that 50k in the amount owed and since the offset is 50k less they seem to be charging interest on that 50k, so in effect they seem to be charging interest on 100k even though that's not what is owed, which is not what I would expect to happen at all! Can anyone shed any light on this system?

silvercar

I would guess that they will only recalculate the total amount outstanding once each year. So £50k has gone off the outstanding balance, but your payments are set based on the original amount of the loan less the offset balance.

You should find that the extra payments reduce the balance still further (when they recalculate).