Lender won't keep payments the same after overpayments

JennyP

Apologies as posted this in MFW board yesterday but got no replies so asking here too.

Have two BTL mortgages with different companies, both currently in fixed term. I could overpay 10% of each so last week I did just that. Both wrote saying they were reducing my monthly payments. I rang both to say to keep them the same. The first one was fine with this. The second said that if the payments were kept the same, I would effectively be making more overpayments and that would incur penalties as I'd overpaid the max amount allowed this year.

Found this written by Martin lewis in Telegraph:

"if your mortgage provider alters your repayments to keep the term the same, although it will boost your monthly disposable income, you won't save on your interest payments, and the lender will earn more. So be sure to tell it to keep your monthly repayments fixed."

Is my lender wrong to say that keeping it the same amounts to more overpayments and would incur penalties?

This scuppers my plan to pay off mortgage in four years. Think it could cost me several thousand more.

Wondering how they calculate the overpayment penalties and if it is worth actually paying the penalties.

Geht_fit

The second said that if the payments were kept the same, I would effectively be making more overpayments and that would incur penalties as I'd overpaid the max amount allowed this year.

There's an MSE page on overpaying. Check the section: Most can overpay 10% per year, but check. Get it wrong and you risk £1,000s in fees.

From my mortgage provider:
If you repay your mortgage early or make an overpayment that's more than your overpayment allowance, an Early Repayment Charge (ERC) may be payable.

You should find details of any ERC payable in your original mortgage offer. If you can't find your original mortgage offer, your annual mortgage statement will show any applicable ERC at the date of the statement.

Could it be that they're trying to help you avoid paying this charge?

JennyP

Yes, they are trying to stop me being charged. Was just surprised that I couldn't keep payments the same!

Geht_fit

Sorry - realise that you want to know whether the interest saved will better the penalty paid. Only way is to check with your mortgage provider? Could you find out when the penalty would be charged?

Typically the charges range from 1!!!8211;5% of the value of the early repayment.
For example, a £100,000 mortgage with a 3% charge would cost you £3,000.

In this case, I guess you would want to be overpaying by enough to significantly outweigh this charge with regard to the interest payable.

JennyP

Just did a recalculation because I was feeling frustrated and realised that my original calculations were all wrong anyway.
The fixed rate ends in March 2022 and I can pay it off then without penalty. I had calculated that making the maximum amount of overpayments would leave me with £10000 to pay off in March 2022. But when I redid the calculations this morning to check how much difference my repayments being altered would make, I discovered that actually I will only owe £5896 by March 2022. Hurrah.
I haven't got the answer to my question but actually I have discovered I will be able to finish my mortgage in four years by paying off less than I originally thought.
So all good!

Geht_fit

Great! All good news! Good luck.

getmore4less

JennyP wrote: »

Apologies as posted this in MFW board yesterday but got no replies so asking here too.

Have two BTL mortgages with different companies, both currently in fixed term. I could overpay 10% of each so last week I did just that. Both wrote saying they were reducing my monthly payments. I rang both to say to keep them the same. The first one was fine with this. The second said that if the payments were kept the same, I would effectively be making more overpayments and that would incur penalties as I'd overpaid the max amount allowed this year.

Found this written by Martin lewis in Telegraph:

"if your mortgage provider alters your repayments to keep the term the same, although it will boost your monthly disposable income, you won't save on your interest payments, and the lender will earn more. So be sure to tell it to keep your monthly repayments fixed."

Is my lender wrong to say that keeping it the same amounts to more overpayments and would incur penalties?

This scuppers my plan to pay off mortgage in four years. Think it could cost me several thousand more.

Wondering how they calculate the overpayment penalties and if it is worth actually paying the penalties.

Although correct you will pay a bit more interest the implication is you don't save any which is just wrong and misleading.

In reality the numbers are small for a 10% overpayment and any extra interest incured by the reduction in payment is relatively low.

eg £100,000 over 10 years@2.5% is £943pm and £90k over 10 years is £849pm.

The difference in interest by reducing the payment is £15 over the next year

no where near £1,000s

getmore4less

What is you mortgage rate, your ERC rate and your savings rate.