Mortgage Over-Payment - Incorrect Monthly Payments

Greg73

Hello World!  First post here - go easy on me.
Situation: We made an over-payment (£4,000) on our repayment mortgage and asked for the monthly payments to be reduced (keeping the existing term which is 13 years).
The bank (nameless for now) recalculated our monthly payment but it just doesn't add up.  Basically the monthly reduction (£17.78) over the remaining 13 years is £2773.68 so how on Earth are we better off?
I've since ran the numbers through a couple of online mortgage calculators which both say that the reduction should be more like £29 per month which adds up to a saving of around £4,500 which makes sense as that's our over-payment plus a saving on the interest.
I've raised a complaint with the bank but three conversations later and they're still claiming that their calculations are correct.  How does this make sense?  We over pay by £4K but only save £2.8k???

Any advice welcome!

getmore4less

Not enough information need the mortgage details
amount outstanding,
rate
payment
exact term(to the month)
is at all on repayment or is some Interest only

£4K over 13 years £29pm would be a rate of around 1.92%(1.65%-2.2%)

Greg73

Thanks @getmore4less details below.
Outstanding (before over payment)  £275,460
Rate 1.94%
Payments £1999.13 (repayment).
156 months remaining.
Bank has calculated that the new repayments will be £1981.35

AnotherJoe

This website https://www.mortgagecalculator.uk/sdays that £4,000 over 13 years at 1.94% is £29/month, as you say.

And, for your previous amount of 275,460, it agrees with what you were paying, eg £1999 plus if you do it on £271,460 it comes to 1,970 eg £29 less.

So you seem to be right and the bank have screwed up.

getmore4less

As I suspected it is just the calculations have been done on different terms due to timings.

£275.460 1.94% 1,999.20  156 months
£4k off
£271,460 1.94% 1,970.17 156 months
£271,460 1.94% 1,981.35 155 months

You crossed the month boundary when the calculation was done.
If you check the exact dates of the payment they have probably rounded down to the nearest month left

Greg73

Thanks @getmore4less that kind of makes sense but surely the recalculation should've been done on 156 months.  As it stands we're losing out?  We've still paid £4k to only save £17.78 per month.  Over 155 months we only save £2,775.90
Appreciate your help.

getmore4less

depends when the change was made on how many months will be left.
Had you paid that month payment or not at the time of the change

Anyway you will actually save  more savings(£240) by knocking a month off rather than less as you think..
Months.payment......interest paid 
156m £1,970.17pm £35,886.64
155m £1,981.35pm £35,648.88

Don't forget you are also making 1 payment less so it is £2,776 + £1,981 = £4757

Greg73

@getmore4less - got it.  Many thanks.  I'll go back to the bank and clarify the timings...

AnotherJoe

getmore4less said:

depends when the change was made on how many months will be left.
Had you paid that month payment or not at the time of the change

Anyway you will actually save  more savings(£240) by knocking a month off rather than less as you think..
Months.payment......interest paid 
156m £1,970.17pm £35,886.64
155m £1,981.35pm £35,648.88

Don't forget you are also making 1 payment less so it is £2,776 + £1,981 = £4757

Ah, thats what clarified it for me. Doh !

Blackbeard_of_Perranporth

If it is my bank, you’ll find that the new calculations for your payment will be made after the monthly payment has been processed. We continued to pay ours during the mortgage holiday, as i changed jobs. The interest rates changed, but it did not catch up until this month!

getmore4less

AnotherJoe said:

getmore4less said:

depends when the change was made on how many months will be left.
Had you paid that month payment or not at the time of the change

Anyway you will actually save  more savings(£240) by knocking a month off rather than less as you think..
Months.payment......interest paid 
156m £1,970.17pm £35,886.64
155m £1,981.35pm £35,648.88

Don't forget you are also making 1 payment less so it is £2,776 + £1,981 = £4757

Ah, thats what clarified it for me. Doh !

When doing checks/comparisons most of the time to the year is good enough but there are times when to the month is needed especially as a  fixes may be years and months  and you are looking for the fee no fee breakeven.

When the term gets shorter a month can make a significant change to numbers.

On some checks you need to go to days  but not very often and you need very specific information like payment dates.

What many forget is that the contractual term just sets a payment, what you pay is the important number
Here the most obvious first check was the exact term but without numbers not easy to guess from the data given

Once  you abstract out the amortisation mortgages are really just simple arithmetic 
new balance = old balance + interest( a function of balance) - payments
(There may be a common modified version where interest is accumulated daily but only added monthly)