Overpayments - Advice Greatly appreciated

bagpussofsussex

Hi All,
I was reading a thread about overpayments on Halifax mortgages and have got myself muddled up, so I wondered if anyone can help..

Our current 5 year fixed rate with Halifax is due to end in the next couple of months. Remaining term of mortgage is just over 15 years, and we've worked hard to clear all other CC debt during the last couple of years. Mortgage is fully repayment. They are offering a new 5 year fixed at 1.35%  Halifax aren't the best or worst on the market, but usually in the top 5/10 on comparison sites, we've been happy with their service, there would be no legal/survey/product fees, and we are in non standard employment situations which Halifax have been fine with so we're planning to stay with them. My plan is to reduce the term to 13 years when we start the new deal. The monthly payment is similar to what we're paying now due to the reduction in interest rate. I want to overpay about £100/month initially, so that at the end of the new 5 year fix we can again reduce the term - I'm aiming to be mortgage free in ten years.

We have an endowment policy maturing next Spring from our first mortgage which was IO/endowment and is likely to be 13-18% of the size of our mortgage at the end of this year. Halifax allow fee-free overpayments of up to 10% of the balance at the start of that calendar year, with the fees running on a sliding scale depending on which year of your fixed rate you're on - 5%, 4%, 3%, 2%, 1%. I've just seen in a post that apparently if you overpay by 10% or more, they recalculate your monthly payment to keep your mortgage term the same, rather than allowing you to retain your monthly payment amount and decrease the term.

I'm trying to work out the best way to overpay my mortgage to meet my aim. It helps that the Halifax website gives you your fee free overpayment figure at the top of the page, and this updates as overpayments are made. I am thinking that the best thing to do next year is to make the planned monthly overpayments until the endowment payment comes in (around May I think), then pay a lump sum to *just* under the fee free overpayment remaining, then to bank the rest of the cash including my planned monthly overpayments and put in another lump sum on Jan 1st the next year - this would stop them from dropping the monthly payments and avoid overpayment charges. I can then look at what's left on the 2023 'fee free overpayment' amount, and either make monthly overpayments or save that money to make another Jan 1st overpayment the next year

Am I looking at this the wrong way? Thank you for any thoughts - I'm thinking that if I make a >10% overpayment, paying a 5% charge to save 1.35% plus having my usual monthly payments lowered is worse in the long term than saving that extra cash (I know that interest on savings is pretty much zilch) and paying it off the mortgage at the earliest opportunity in the next year. I'm going round in circles..

getmore4less

first point
You  probably can't just change the contractual term using a retention deal without it getting rechecked.

getmore4less

One point not raised in the other thread is do Halifax(other than hitting the overpayment limit) ever reset the payment?
Many lenders do it annually anyway.

if they do then there will be no benefit in doing a reduced overpayment to avoid going over the annual allowance.

On a 5y fix the difference over the 5 years won't amount to much anyway.  .

bagpussofsussex

getmore4less said:

first point
You  probably can't just change the contractual term using a retention deal without it getting rechecked.

Thank you for your thoughts

I asked them about this - they said that if the new monthly payment is less than our current payment then changing the term would be fine, and no checks would be needed as we've been affording that payment for five years. If the new payment is above our current monthly payment then they'd ask for income information to do an 'affordability check'.

On our current five year fix, the monthly payment has stayed the same throughout. Having said that we have made very minimal overpayments as we prioritised clearing the rest of our debts - we only have the mortgage now

getmore4less

Maybe a broker knows more but generally that has not been an option for retention deals.

If you can keep the payment the same over 5 years if you don't exceed the 10% will be worth a number crunch.