Mortgage Overpayments - What happens at renewal?

McCreary

Hello all,

I'm hoping for a bit of clarity as I'm getting a bit confused about overpayments with my mortgage.

My mortgage is a bit complicated as when I moved my existing provider "ported" by old mortgage as part of my new mortgage. This means that we will pay a significantly less amount of interested over the lifetime of the mortgage.

Part 1 - £27k remaining with 13 years left.
Part 2 - £130k remaining with 33 years left.

As a result we are paying about £770 a month to our mortgage provider. It is our intention to pay Part 1 off as soon as we can and then remortgage Part 2 as a single mortgage with 20 years and still pay the same off each month so that we can be mortgage free as soon as we can be.

I have a fixed deal for both of the parts which are a year out of sync at the moment but I got a three year fixed deal for Part 2 last year and I'm going to fix for 2 years with Part 1 in the new year which means that they will both mature at in the same year in future (give and take a few months).

With the deal I have we are allowed to make 10% of overpayments on each part, so we increased our direct debit to £1000 per month and this overpays Part 1 of the mortgage. Our provider asked us if we wanted to recalculate the monthly repayments based on the overpayments we make and I do not want to as our aim is to not take a payment holiday but rather pay it off quicker. However, they said they would recalculate this at the annual review. Does this mean that my monthly repayment is going to be lowered and therefore the overpayments have been taken into account? I don't really want the monthly payment to reduce as our aim is to reduce our mortgage debt.

I may have completely got this wrong or I may be thinking about it incorrectly so very happy to be corrected or advised!

As a side note, we took our home insurance with our mortgage provider (I did a search and it was a competitive deal). However, we had a claim with them due to a freak electrical storm which took out most of our electronics so our premium has gone up and I am looking to change providers. However, when we signed up for out mortgage they said that we needed to have them listed as an interested party on our home insurance policy. This was in 2016 - is this still the case?

Thanks in advance,
Mc

amnblog

Yes, they are an interested party on the insurance. The property is their security.

That is the case whether the lender offers the insurance through one of their firms of not.

McCreary

amnblog wrote: »

Yes, they are an interested party on the insurance. The property is their security.

That is the case whether the lender offers the insurance through one of their firms of not.

Thank you - I read something online that it is no longer a requirement. Although I cannot remember where I read it!

Thrugelmir

McCreary wrote: »

Our provider asked us if we wanted to recalculate the monthly repayments based on the overpayments we make and I do not want to as our aim is to not take a payment holiday but rather pay it off quicker. However, they said they would recalculate this at the annual review. Does this mean that my monthly repayment is going to be lowered and therefore the overpayments have been taken into account?

The lender appears to recalculate the amount required to repay the outstanding debt on an annual basis over the remaining term of the mortgage. That's fair enough. As it's the terms of your mortgage agreement. All you need do is up your overpayments. Though I would add the caveat. Ensure that you don't go over the 10% limit as the balance reduces. Otherwise you'll incur a penalty.

When looking forward make due allowance for what interest rates might rise too. Don't over commit to a shorten term that puts your finances under pressure. Having flexibility with overpayments can be usefull.

McCreary

Thrugelmir wrote: »

The lender appears to recalculate the amount required to repay the outstanding debt on an annual basis over the remaining term of the mortgage. That's fair enough. As it's the terms of your mortgage agreement. All you need do is up your overpayments. Though I would add the caveat. Ensure that you don't go over the 10% limit as the balance reduces. Otherwise you'll incur a penalty.

When looking forward make due allowance for what interest rates might rise too. Don't over commit to a shorten term that puts your finances under pressure. Having flexibility with overpayments can be usefull.

Thank you - that makes sense. We will just up the over payments but make sure we don't go over the 10% limit. I wasn't planning or shortening the term at the moment. That might be something for 5 years time.