If I overpay up to the 10% annual limit, do I HAVE to reduce monthly payments or else fees?

arthurmauk

Hi all, I have a mortgage with Halifax. Earlier this week I made a lump-sum overpayment of 10% which was allowed without any Early Repayment Charges. However, a messaging agent is now telling me that I HAVE to reduce my normal monthly payment amounts otherwise I may get charged fees for overpaying?

As I understand it, when I overpay I have the choice of either reducing my monthly payments or not, leading to a reduction in the term ultimately. I normally don't reduce my monthly payments hoping to reduce the term, and this has been the case for many years now. I'm confused about what this agent was talking about then, is my understanding correct or is she correct? Thanks in advance.

K_S

@arthurmauk Afaik, when it comes to recalculating monthly payments due to prior overpayments, Halifax will only reduce the amount and not the term of the mortgage. To reduce the term, as per their speil you will need to go through an assessment with an adviser. 

But the point of recalculation on a fixed term is usually at the end of the term, so your monthly payments *shouldn't* change for now.

Other lenders may do it differently, for example Nationwide allows you to choose what should happen.

In any case, try get someone on a call and ask if/how you can get your overpayments to result in a shorter term.

janoid19

Hi,
I am also interested in the answer to this. I am in the process of buying with a Halifax mortgage and hope to overpay slightly each month to reduce the term. Never thought I might have to reduce the monthly payment!

getmore4less

Some lenders do allow you to keep the payment the same.
Some it will trigger a recalculation as do other events, like annual or change of rate.

BUT

It makes a tiny difference if you reduce the payment save up the difference and pay it off next ERC free window

When I say TINY think a few £.
eg
£100k 2% over 25years the difference is ~£5 a year.

SuperHung

Just pay 9% then to avoid moving goal posts/recalculations.

ahdinko

I've recently just finished my mortgage with Halifax. Mine was a 5 year fixed term, 10% overpayments allowed each year during the fixed term. I overpaid under 10% most years without any change in monthly payment but one year I did overpay by the full 10% to the penny, and they recalculated my payments to a lower amount.
As I only was about a year away from the end of my fixed term, I just paid the lower amount until my fixed term ended, and then made a larger overpayment with the lump sum I had saved from from a year of lower repayments. 
In the end I probably lost a few hundred quid in interest than if I'd paid in 9.99% and not had the recalculation, but over the course of a mortgage and the sums involved, its not really worth fretting about.

[Deleted User]

Its because you paid 10% extra. This mean your usual monthly payment is now more than required under your mortgage terms. The difference between the old payment and the new payment breaches the 10% rule so attracts an early repayment. This will only be for this mortgage year. Next year just pay short of 10% so payments keep the same 

Thrugelmir

As has been suggested pay 8-9%. Then pay the remainder up to the 10% limit just before the calender year ends. You'll need to calculate this amount. 

getmore4less

ahdinko said:

I've recently just finished my mortgage with Halifax. Mine was a 5 year fixed term, 10% overpayments allowed each year during the fixed term. I overpaid under 10% most years without any change in monthly payment but one year I did overpay by the full 10% to the penny, and they recalculated my payments to a lower amount.
As I only was about a year away from the end of my fixed term, I just paid the lower amount until my fixed term ended, and then made a larger overpayment with the lump sum I had saved from from a year of lower repayments. 
In the end I probably lost a few hundred quid in interest than if I'd paid in 9.99% and not had the recalculation, but over the course of a mortgage and the sums involved, its not really worth fretting about.

No where near a few hundred it was going to be a few £.

getmore4less

Densol said:

Its because you paid 10% extra. This mean your usual monthly payment is now more than required under your mortgage terms. The difference between the old payment and the new payment breaches the 10% rule so attracts an early repayment. This will only be for this mortgage year. Next year just pay short of 10% so payments keep the same 

The savings are tiny It is still better to do the 10% and have the lower payment than over pay a bit less and keep the payment the same.

bagpussofsussex

OOh I didn't know that was a thing with Halifax... My endowment matures next year (from my first mortgage). So to avoid them adjusting my monthly payment, I need to work out 10% of the balance on Jan 1st, then 12x my regular monthly overpayment, and make my lump sum overpayment no bigger than the difference between the two? And then bank the rest of the endowment money until the next calendar year...