Not allowed to reduce mortgage term

Tom4466

Hello money savers. I’ve just been on the phone to my mortgage provider (Skipton) to make a one off overpayment. Got the details and amount confirmed but I was surprised to hear that I wasn’t allowed to reduce the term and could only reduce my monthly payments. This is apparently due to some recent change in government rules and they had to remove the option. Has anybody heard of this before? Is this the case or is he giving me duff information? 

Caz3121

info from their site...it does appear to be as you have been told 
https://www.skipton.co.uk/mortgages/mortgage-hub/mortgage-overpayments
other lenders appear to offer the choice of reduced payments or term (with the former being the default and the latter requiring a conversation)

Neutrinno

I haven't personally heard of this 'government rule' change, but I imagine it would be Skipton's discretion on whether overpayments reduce term or monthly payment on their loan.

Thrugelmir

Reducing the mortgage term is a contractual change. In doing so lenders themselves fall under affordabilty regulations and duty of care towards their customers. Skipton have appear to have decided that's it's simpler not to offer the option. As not cost effective from their point of view. 

getmore4less

Just keep up overpayments of the small amounts when the payments drop, up to the the ERC free limits.

Term just sets the contractual payment. 

AnotherJoe

Tom4466 said:

Hello money savers. I’ve just been on the phone to my mortgage provider (Skipton) to make a one off overpayment. Got the details and amount confirmed but I was surprised to hear that I wasn’t allowed to reduce the term and could only reduce my monthly payments. This is apparently due to some recent change in government rules and they had to remove the option. Has anybody heard of this before? Is this the case or is he giving me duff information? 

It makes no difference. If you continue to pay your previous payment (which you may have to do via an additional standing order assuming they take the money via DD) then your mortgage will end quicker. By not contractually shortening it you give yourself the flexibility to revert to lower payments should you need to without paperwork or legalities (freedom you would NOT have if you shortened the period) , and you lose nothing except a slight amount of extra hassle with an extra payment.

phillw

AnotherJoe said:

By not contractually shortening it you give yourself the flexibility to revert to lower payments should you need to without paperwork or legalities (freedom you would NOT have if you shortened the period) , and you lose nothing except a slight amount of extra hassle with an extra payment.

You are correct that reducing your payments can be an advantage if you ever hit financial difficulties in the future.
However if the aim is to pay it off as quickly as possible then you will pay less by shortening the term, most mortgages have limits on how much you can overpay each year & with the monthly payments being reduced then you could end up in the situation where you have cash you could have overpaid but would trigger ERC limits.
If you have no ERC then reducing the monthly payment is the best option.

Tom4466

Thanks for everyone’s posts. I did check and spoke to skipton again and they only allow to reduce the monthly payments if you make a lump sum payment. Reducing the term was my preferred option as I was hoping to reduce the total mortgage cost with interest charges etc. It’s just something I’ll have to read into a bit closer when I come to remortgage next year. 

kingstreet

If you continue to make the same monthly payment as before and simply adjust the emphasis so you increase the voluntary overpayment by the contractual payment reduction, you will achieve then reduction in term you desire.
For example, if the contractual payment for a 20 year term is £500 you can choose a 25 year term and if you pay £500 a month, you will repay the mortgage in 20 years.