Understanding Halifax Underpayments

cjv

I feel rather stupid, but can still not get my head around what this actually means from the description on Halifax website.

Underpayments
What are they?
An underpayment is where you pay less than your monthly payment. You're not allowed to make underpayments unless you have already made overpayments.

Whenever we recalculate your monthly mortgage payment, we use any overpayments you have made to reduce what you owe. Once we have done this, you will need to build up new overpayments before you can underpay again.

Just for example if my mortgage payment is £500 a month, does this mean that if I were to overpay by £250 a month for 12 months, I could underpay by £250 a month in year 2?

Obviously the figures would not be exact.

Or do your overpayments reduce the total you owe, and then repayments are recalculated and reduced slightly using that new total?

Joe_Bloggs

Do not entertain making overpayments if you will be forced to make underpayments at a later date. Your payments are reported to credit reference agencies and an underpayment on a crucial loan will start alarm bells ringing and leave a lasting record of apparent difficulty, in making payments, with other potential lenders.


I make my overpayments from savings money that has been saved for over a year. It makes sense to overpay the mortgage on money that has matured from flexible regular savers. It may make more sense to maximize flexible regular saver interest before entertaining mortgage overpayments if the interest is higher on the regular saver.


Do not restrict your horizons to only Halifax for savings/financial products.



J_B.

cjv

Thank you for the advice, I did not even notice the option of underpayments until I received my Mortgage Illustration so It was not something that I was planning on doing.

I just want to understand if their are actually any meaningful benefits to the flexibility of payments.

Unfortunately I was limited on the choice of lenders, so Halifax was a good option in my case. I will be looking to remortgage after the 2 year fix to a better rate, as I will have more options by then with a lower LTV, the property no longer being classed as a new build with some lenders etc.

Joe_Bloggs

@cjv , Halifax are an excellent mortgage lender. This appears to be subsidized by expensive overdrafts and poor savings account rates.



Once you have your mortgage you can shop around to add to current and savings accounts that are more rewarding.


It is important to build up emergency reserves after buying a home especially if you have nothing left and Christmas is around the corner.



I started off with HBOS that included Halifax. I remortgaged to Nationwide. With Nationwide I can apply to borrow back overpayments . I Never will.



J_B.

cjv

Yes I would hate to move into my new home with nothing in my bank accounts. I stuck firm at a 15% deposit when working with my broker, even though It would of made things easier to stretch to 20%.

My plan is to build up at least 6 months wages as an emergency fund, while also overpaying my mortgage. Things will be tight until I hit my savings target, but worth it in the long run for my piece of mind.

Edit: I just checked and there are indeed a couple of current/savings accounts that will beat my mortgage rate! I will open them and fill them up first before overpaying, after completion. Thanks again for the advice, I have been avoiding credit applications like the plague in the build up to my mortgage application, I had not even thought to check.

AnotherJoe

Don't just overpay "as a thing" which you appear to be doing, presumably on the grounds it's an good thing. There are usually many better uses for your money.
I'd bet for example, that you are underpaying your pension. And you certainly shouldnt be overpaying at all until you have built up a good buffer of emergency savinsg

cjv

AnotherJoe wrote: »

Don't just overpay "as a thing" which you appear to be doing, presumably on the grounds it's an good thing. There are usually many better uses for your money.
I'd bet for example, that you are underpaying your pension. And you certainly shouldnt be overpaying at all until you have built up a good buffer of emergency savinsg

My emergency fund is my priority, after that my plans to overpay are to bring my LTV down to 75% before I remortgage in 2 years. Then I will see how my finances are and look at increasing my SIPP contributions.