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Made overpayments, had letter reducing my payment amount

edited 30 November -1 at 1:00AM in Mortgage-Free Wannabe
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indierocker85indierocker85 Forumite
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edited 30 November -1 at 1:00AM in Mortgage-Free Wannabe
Hi guys

I am new to the mortgage boards and the MFW board....so "Hi"

We recently completely on our first property and have a 5 year fixed mortgage of £132000 at 2.51% which allows 10% overpayments a year

I have been using the Vertex mortgage calulator spreadsheet thanks to a board on here and have overpaid around £4200 in the first two months, and according to the calculator, we have knocked a full year off our mortgage and saved £3427 in interest over the mortgage lifetime...We now owe around £127,260 ish....but I anticipate more overpayments to be made, as we journey towards MF life.

Our monthly payment was £592.34

I have today received a letter from Skipton advising us that as we now owe less, they are reducing our payment to £573.85....I presume this is so the duration is still 25 years.....Will this result in us paying more interest than we would had it stayed at £592.34? Will it make any difference? Should I contact them and advise I wish for it to stay as is?
Live for what tomorrow has to bring, not what yesterday has taken away

Replies

  • indierocker85indierocker85 Forumite
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    I have added the revised interest rate into my spreadsheet, and lo behold, it brings the term back up to 25 years and eliminates the 1 year gain, and the interest savings too.

    Skipton have since told me if I wish to retain my £592.34 payment amount, I can, but the £18.49 difference will be part of our overpayment allowance!!!!! I can't say I am too impressed but all the more reason to clear the balance faster I guess
    Live for what tomorrow has to bring, not what yesterday has taken away
  • julicornjulicorn Forumite
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    Changing the mortgage term is a contractual change, and the lender would need to re-assess affordability in order to do that (to the best of my knowledge, at least). They therefore tend to reduce the monthly payment instead. Our lender only does this once a year (January), it's a bit annoying that yours appears to do so straight away - that makes it a lot trickier to work out how much you're allowed to overpay each year.
    Original mortgage: December 2017, £203,495
    MFW start: April 2018, £201,800
    Current: £113,200 (-£21,000 overpayment savings pot)
  • indierocker85indierocker85 Forumite
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    So you mean, they can't say to me "we are reducing your term to 24 years", and thus our option is to amend the payment by £18.49. The thing is, this eliminates the interest savings and obviously benefits them, as my interest amount increases, which is wrong.

    They have now said I can pay £592.34 but the £18.49 difference will be classed as part of my over payment allowance. I guess it isn't too hard working out the £184.90 (10 months) off of my remaining allowance I can overpay, but still, I think it's borderline rogue.
    Live for what tomorrow has to bring, not what yesterday has taken away
  • HazelnuttyHazelnutty Forumite
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    I made a lump sum overpayment right at the start of my new mortgage (it takes time to arrange so the actual redemption figure ended up being £5k less than the amount I requsted and apparently this couldn't be changed). The new provider initially did what yours did - wrote to me to say it was reducing the monthly payments. I had to phone up and have a long convo with them but in the end they took it off the capital (ie it counts as a part redemption) so my monthly payments remained the same (but effectively, I'd pay off sooner). I haven't heard anything about this impinging on my 10% OP capacity (although TBH I'm nowhere near that anyway). All my monthly OPs come straight off the capital as they're small enough. I think the line was (Barclays) that as long as the OP is less than your normal monthly payment, then it comes straight off the capital. I have no idea if this is standard practice, or just Barclays, but it does seem odd that you'd be penalised for choosing to have your OP come off the capital.
    Choose kind:)
  • julicornjulicorn Forumite
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    Nothing is stopping you from saving additional money on the side, and paying off a larger chunk at the end of your fixed term.

    As for the overpayment allowance, I was trying to say that if they change your payment amount every month, and class everything above that amount as 'going out of your overpayment allowance', it makes it more difficult to work out how much you're allowed to overpay on top of that compared to if they just gave you a figure and a fixed monthly payment at the start of the year (as my lender does).
    Original mortgage: December 2017, £203,495
    MFW start: April 2018, £201,800
    Current: £113,200 (-£21,000 overpayment savings pot)
  • indierocker85indierocker85 Forumite
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    They clearly don't like losing the interest we would have otherwise paid.
    Live for what tomorrow has to bring, not what yesterday has taken away
  • indierocker85indierocker85 Forumite
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    julicorn wrote: »
    Nothing is stopping you from saving additional money on the side, and paying off a larger chunk at the end of your fixed term.

    As for the overpayment allowance, I was trying to say that if they change your payment amount every month, and class everything above that amount as 'going out of your overpayment allowance', it makes it more difficult to work out how much you're allowed to overpay on top of that compared to if they just gave you a figure and a fixed monthly payment at the start of the year (as my lender does).

    Mine was 10% of the balance per year, which was £132000 and thus my overpayment allowance is £13200, so I am simply making a note of what payments I have made, and how much of that allowance is remaining that I can overpay without fees.

    The thing is, if I make another overpayment, are they then going to do this again?
    Live for what tomorrow has to bring, not what yesterday has taken away
  • AnotherJoeAnotherJoe Forumite
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    How much are you paying into your pension? Because in the long term overpaying your mortage may not be the best financial approach compared to putting more money in a pension especially if you are a high rate taxpayer as you are losing out on a 20% tax rebate at least .

    You are also lowering the amount of money that will be decremented by inflation over the next 25 years, eg the last pounds you pay back will in real terms likely only be worth half today's pounds , by rushing to pay it off you are minimising the time inflation can work on it at no expense to you (and losing out on the time pension payments can accumulate through investment growth).
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