Natwest Overpayments confusion

Sparky696

Sorry for the long winded post, but i've been in touch with my mortgage provider to increase the payments, like i have done for the last 5 years and have been told that making an overpayment only reduced interest and and the balance owed "it doesn't reduce the term" See the conversation below, as i'm quite annoyed as i've overpaid to reduce my mortgage term and getting told it doesn't seems wrong? Where has my money gone if it doesn't reduce the term?

Thank you. For sub 1 you can overpay £1159.48 and sub 2 is £176.71 until 3/4/21

You at 11:51, Apr 3:

That's great, would you be able to apply that the over payment please.?

Vicki at 11:54, Apr 3:

 How much of an overpayment are you wanting to make each month ?

You at 11:54, Apr 3:

the maximum for each month please

Vicki at 11:56, Apr 3:

 £111.34 each month ?

You at 11:56, Apr 3:

yes please.

Vicki at 11:57, Apr 3:

I need to make you aware that the overpayment amount that you choose is fixed. If your contractual monthly payment changes in anyway the amount of the overpayment will not alter.Your contractual monthly will change following any recalculation for example: A rate change, a product switch or a lumpsum overpayment of £2000 or more.Monthly overpayments will help to reduce the balance of your mortgage and you will therefore pay less interest over the period of your mortgage. However the term of your mortgage will not change as following any recalculation your contractual payments are reset based on the current remaining term.

You at 11:58, Apr 3:

That's fine as long as i'm paying off my mortgage earlier i'm happy.

Vicki at 11:59, Apr 3:

 Can I just re-iterate that the term of your mortgage will not change as following any recalculation your contractual payments are reset based on the current remaining term.

You at 12:01, Apr 3:

So as i understnd it, my mortgage term will stay at 5 year and 10 months counting down over the next 12 months, then re-calculated on the new financial year, to the remaining term?

Vicki at 12:02, Apr 3:

No, if you make any payment over £1000, apply for a new rate or any other recalculation done on your account your payment would be re-calculated to fit in with the remaining term

You at 12:05, Apr 3:

I'm sorry, I'm struggling to understand the overpayment part. I thought that making an overpayment reduced the amount on the mortgage therefore reduced the term (number of years) left?

You at 12:07, Apr 3:

if it's easier to explain on the phone i'm available?

Vicki at 12:07, Apr 3:

 No, it doesn't have an effect on your term due to the reasons mentioned above

You at 12:08, Apr 3:

So what is the point in the overpayments?

Vicki at 12:09, Apr 3:

 To reduce your balance and the amount of interest you pay

You at 12:11, Apr 3:

Yeah, but reducing the balance and paying less interest surely reduces the length of time you have on the mortgage?

Vicki at 12:12, Apr 3:

 Your contractual monthly will change following any recalculation for example: A rate change, a product switch or a lumpsum overpayment of £1000 or more

You at 12:13, Apr 3:

Ahh, so my monthly one will reduce to match the 5 years left while im on a fixed term contract?

Vicki at 12:14, Apr 3:

 Yes

You at 12:14, Apr 3:

So can i reduce my term then?

Vicki at 12:14, Apr 3:

 You would need to make an application for this, there is a fee of £35

You at 12:15, Apr 3:

OK, i would like to do this please. I've been over paying the last 3 years and your the first person to tell me this.

Thrugelmir

Haven't read your entire post. 
1. Overpayments will reduce the term of the mortgage. That's a natural consequence of doing so. 
2. Lenders may not revise your contractual mortgage term without your express instruction. Not an automatic consequence of making overpaymnents. Systems aren't geared to detect overpayments automatically. A charge maybe levied to amend the term as it requires human intervention. 
3. By making overpayments and not amending the term. Upon the change of interest rate your standard monthly payment will be recalculated to repay the mortgage over the remaining term of the mortgage. You would then need to revise your overpayments to pay off the mortgage quicker. 

Sparky696

Thanks Thrugelmir, so i re-calculate every year and make sure i always stay in the threshold.
So i'm assuming that my term of 5 Years 10 months term stays, but so long as i keep over paying that 5 year 10 months term will stay, but i potentially won't have to pay anything for the last 2 years, or i just take the early repayment charge at say 3rd year and pay whaever is outstanding i.e £1900, and going of the the mortgage overpayment from Money Supermarket, this is what my mortgage would look like if i carry on paying within the 10% threshold?
In 2 years time i'll be out of the locked 3.1% contract, and in which case i think i can pay as much as i like off without a charge.
Thanks again for replying.

Your remaining debt (assuming your interest rate stays the same)

Year	Without Overpayment	With Overpayment
0	£13,890	£13,890
1	£11,281	£9,930
2	£8,590	£5,846
3	£5,815	£1,633
4	£2,952	£0
5	£0	£0

Thrugelmir

Your thinking is  correct. Also once out of the fixed term you are free to overpay by as much as you wish. 
The advantage of leaving the term as it is. Is that you have the flexibility to reduce your outgoings should needs must. 

Sparky696

Thank you very much! I don't know why the adviser couldn't just explain that to me on the chat. Much appreciated and I hope this can help someone else in the future.

Thrugelmir

Sometimes the written word is easier to understand!  If it's not possible to have face to face contact.