Fixed-term mortgage overpayments

7samwatson7

Hi,

I'm considering taking out a fixed-term mortgage (5 year fix) for my first property. What I want advice on is, if for example the monthly payment for that fixed term was e.g 600 per month, and I overpaid each month e.g 650 per month, would my monthly payment amounts change immediately i.e month 2, 3, 4 and so on, or does the fix mean that even if you overpay you're signing up to pay that fixed amount every month for the fix period i.e 5 years??? Any help would be much appreciated.

Lokolo

Some providers will lower the minimum payment required, someone will keep it the same and lower the term (the bit where its over 25 years for example).

The 5 year fix fixes the interest rate.

7samwatson7

That's helpful thank you. So, for example within the fix you could see your monthly payments declining (slowly) e.g

Year 1

600
598
597
596

and so on??

Blondetotty

In my experience, no. Maybe it's possible but I've never seen it. I've been on both fixes and svr's and with my mortgage statement the interest amount I'm paying every month reduces slightly but the repayment to capital increases so the monthly payment the bank takes is the same every month.


As an example say I pay £258 a month.
In month 1 £200 is interest, £58 is capital repayment.
In month 2 £198 is interest, £60 is capital repayment
In month 3 £185 is interest, £63 is capital repayment


Also check you can make additional payments without incurring an early repayment charge. On my first fix I wasn't allowed to make any additional payments or the ERC was due which was 3% of my mortgage value. I simply saved a little every month and put it away and then made a one off payment at the end of that fix. I've been on an svr for a number of years (lazy I know) which allowed any amount of overpayments but I've just fixed again and with this one I'm allowed to make up to 10% of my mortgage value additional payments per year. If I go over 10% then an ERC of 3% is payable.


You'll need to check your paperwork to see what the terms are for making overpayments though. Some may allow it, some may not.

Blondetotty

Saying all that I'm not an expert and maybe you can reduce the monthly payment. My answer is based on my personal experience, before someone jumps in and gripes about me being wrong.

saajan_12

Depends on the lender / how the mortgage is agreed. The fix refers to the interest rate. Either
1. Total payments also fixed -> If you overpay, then the loan amount reduces, so a smaller portion of your payments are needed for interest, leaving more to pay down capital. So, your mortgage is paid off sooner / balance is lower if you remortgage.

2. Total payments not fixed -> If you overpay, your interest reduces, so you pay less each month. Capital portion unchanged so no effect on mortgage length. This is more common with interest only mortgages.

kinger101

You need to check the terms of your mortgage. Large lump sums are also often treated differently from regular overpayments.

Bear in mind that there are regular savings accounts available that pay 5% interest. That would be a better place to stick the money than overpaying a mortgage at a low APR.

ashe

I!!!8217;d definitely keep payments the same and reduce mortgage term, use an overpayment calculator to show how this will impact

Thrugelmir

Larger lenders will have systems that will only recaculate monthly payments when there's a change in the interest rate, i.e. at the end of a product term or change in bank base rate (for variable interest products).

Majority of mortgage payments are collected by direct debit. To collect a modified amount the borrower has to be notified. Also DD runs are compiled anything up to 10 days prior to collection date. The administration required to amend the collection of thousands of individual accounts isn't cost effective.

If you make overpayments ensure that you don't trip up and end up exceeding the annual allowance.

sevenhills

I am in a 10 yr fix with Coventry, I repaid £1,000 and they asked me if I would like it to lower the payments or keep the payments the same and shorten the term.
It reduced my payments by around £10 per month.