New Mortgage Term During Coronavirus

ChrisA1993

Hi,
My fixed rate mortgage is due to end and I wanted to go onto a new 5 year fixed rate 12 year term. Unfortunately, the bank have declined this as I am currently furloughed due to coronavirus. I have been told that I can stay on the current mortgage term with a new 5 year fixed rate and can make overpayments in the meantime. The minute I am back working full time, the bank have said I can ring up and change my mortgage term to 12 years and alter my monthly payments. Does this sound okay? I wasn't sure you were allowed to change mortgage term completely whilst still in fixed rate?

silvercar

Sounds like an affordability issue. The bank doesn't want you to agree to repayments which are not affordable (at least on paper). seems sensible to me, particularly as you are allowed to make overpayments.

ChrisA1993

Yeah, it was due to my lowered income on furlough payment.
I just wanted to see if anyone had heard of changing your mortgage term a few months into a new fixed rate as I have been told by the bank it will be easy to do and no charge will apply but have not heard of this being done before?

Grumpy_chap

Are you being offered the same 5 year fixed rate as you asked for?
If so, does it make any difference what your mortgage term is if the bank allow penalty-free over-payments?  
The latter option may be better as it gives you more flexibility but you can still overpay towards the 12-year term if you remain able to.

Thrugelmir

Banks can consider and agree to vary contractual mortgage terms. For the majority of people it's just as easy to overpay. As this provides flexbility as to when and whether the overpayments are made. 

ChrisA1993

Yes, the same 5 year fixed rate will apply. I have heard that banks can be sneaky and if you overpay every month they reduce your regular monthly payment to ensure the longer term applies. I would also need to change to a shorter term as after 3 years my overpayments every month would amount to greater than 10% allowed so I would begin to be charged.

Thrugelmir

ChrisA1993 said:

Yes, the same 5 year fixed rate will apply. I have heard that banks can be sneaky and if you overpay every month they reduce your regular monthly payment to ensure the longer term applies. 

As the term is contractual there's nothing sneaky. Though some lenders have terms and conditions to adjust the length if the overpayment is above a certain limit. 

ChrisA1993

I suppose I am really just wondering what other people's thoughts are. I have only had a fixed rate monthly payment before and so don't have experience of paying monthly then adding an additional standing order payment. Has anyone encountered any problems doing this or in general are they quite a good idea?

Grumpy_chap

It sounds like you should take the deal they have offered you now and do the over-payments. 

Worry about the change in 3 years time when it arises in three years. 

You would have to ask the bank about their specific rules for changing the term while still in a fixed rate but, if they say no, do over-payments for 3 years and then, once the over-payments are not permitted any longer because of the 10% cap, put the over-payments in a deposit account and just re-negotiate to reduce the balance and the term together at the end of the 5 year fix.

On my mortgage, I pay the direct debit plus the standing order and never had any issues with it, but my mortgage is interest only (direct debit) but unlimited over-payments (standing order) with no 10% cap in place.  Sounds different to your agreement so be careful of extrapolating my experience to your situation.

ChrisA1993

Grumpy_chap said:

On my mortgage, I pay the direct debit plus the standing order and never had any issues with it, but my mortgage is interest only (direct debit) but unlimited over-payments (standing order) with no 10% cap in place.  Sounds different to your agreement so be careful of extrapolating my experience to your situation.

Yeah, I think your situation would be easier as I wouldn't have to worry about the 10% cap for overpayments. I have had many calls with a TSB mortgage advisor and she has explained to me that it would be no problem to change the mortgage term in a few months to 12 years and pay just one monthly payment. I was just slightly uncertain as had never heard of doing it before just after a new fixed rate had been placed. Unfortunately, I think due to the current situation it would be nearly impossible for me to get the 12 year deal that I want with any other bank therefore it is likely that I will have to go along with the current mortgage term and do some overpayments for the next few months and hope that by the end of the year I will be able to swap over to the 12 year deal.