Confused about 10% overpayment

Teleri

Hello,

I have a NatWest mortgage set up two years ago and would like to pay a lump sum off the mortgage. We have never made an overpayment on the mortgage before.

The mortgage constract states:

"you can make overpayments on this mortgage.

You can overpay a maximum of 10% of your outstanding balance in each 12 months period.... without incurring an Early Repayment Charge."

I called NatWest today with the impression we could pay 7k off our 70k mortgage. However, the advisor stated that we are only permitted to pay 10% off the capital in total in a given year (i.e. the 10% overpayment includes the monthly repayments). We argued that overpayment means in addition to what is normally paid. They said that that wasn't the case and we would have an early repayment charge or our monthly payments would be reduced (to prevent us from overpaying anything above the 10% remaining on the mortgage including the regular monthly payments).

I'm very confused about this as we are trying to pay our mortgage off quicker rather than reduce the payments each month. Could anyone please help clarify this for me as I don't understand their explanation.

Thank you.

robatwork

It doesn't really matter on your or our opinion. You did the right thing by calling them first, just get the maximum figure you can pay in a lump sum assuming your monthly payments remain the same, and when you pay it, ensure you call/mail and tell them it should go towards reducing the term. This is the norm with the mortgages/banks I've had but it's always best to confirm that.

Without seeing all of your paperwork it's hard to say exactly what "overpay a maximum of 10% of your outstanding balance" means - does it mean balance as at the start of the period for example?

Thrugelmir

By making a lump sum overpayment. You will immediately reduce the monthly interest charge. Meaning that on an ongoing basis of your standard monthly repayment, more will go to reducing the capital balance owed (for the remander of the current year).  Resulting in you exceeding the 10%. Pay off 8% now, when you get to the final month of the year. Pay the maximum you are allowed to utilise the full 10% allowance. 

Teleri

Thrugelmir said:

By making a lump sum overpayment. You will immediately reduce the monthly interest charge. Meaning that on an ongoing basis of your standard monthly repayment, more will go to reducing the capital balance owed (for the remander of the current year).  Resulting in you exceeding the 10%. Pay off 8% now, when you get to the final month of the year. Pay the maximum you are allowed to utilise the full 10% allowance. 

Thank you very much, that makes sense to me now!

prestonmike

Thrugelmir said:

By making a lump sum overpayment. You will immediately reduce the monthly interest charge. Meaning that on an ongoing basis of your standard monthly repayment, more will go to reducing the capital balance owed (for the remander of the current year).  Resulting in you exceeding the 10%. Pay off 8% now, when you get to the final month of the year. Pay the maximum you are allowed to utilise the full 10% allowance. 

Im not sure this is the case with all lenders so you may need to check with the bank you are with. I am with Halifax and have overpaid my mortgage by 10% every January, this overpayment has never resulted in overpayment charges from my regular monthly payments and they have never amended my payments or term until i get to the end of my fixed period

Teleri

prestonmike said:

Thrugelmir said:

By making a lump sum overpayment. You will immediately reduce the monthly interest charge. Meaning that on an ongoing basis of your standard monthly repayment, more will go to reducing the capital balance owed (for the remander of the current year).  Resulting in you exceeding the 10%. Pay off 8% now, when you get to the final month of the year. Pay the maximum you are allowed to utilise the full 10% allowance. 

Im not sure this is the case with all lenders so you may need to check with the bank you are with. I am with Halifax and have overpaid my mortgage by 10% every January, this overpayment has never resulted in overpayment charges from my regular monthly payments and they have never amended my payments or term until i get to the end of my fixed period

Thank you, it is very confusing. The mortgage document makes it sound like we can just pay 10% over and above our usual payments in each 12 moth period and there will be no charges. We phoned NatWest again tonight, their system was down and they didn't call back. They said we could overpay on top of our normal monthly repayments by 10% of the outstanding debt (a different answer to what we got this morning) but they'd have to recalculate our monthly payments. They couldn't give more answers as they couldn't see details on the system.

I don't know why it has been so hard getting a clear answer from them really but will phone again tomorrow.

MovingForwards

https://personal.natwest.com/personal/mortgages/mortgage-calculators/mortgage-overpayment-tool.html

You can pay up to  10% extra each year, that's on top of your contractual monthly payment, without incurring any ERCs (assuming you're still in a fixed rate at the moment).

Rolandtheroadie

Deleted a comment as I'd read Natwest but for some reason thought Nationwide. Sorry for any confusion if you read it.  

Thrugelmir

Teleri said:

prestonmike said:

Thrugelmir said:

By making a lump sum overpayment. You will immediately reduce the monthly interest charge. Meaning that on an ongoing basis of your standard monthly repayment, more will go to reducing the capital balance owed (for the remander of the current year).  Resulting in you exceeding the 10%. Pay off 8% now, when you get to the final month of the year. Pay the maximum you are allowed to utilise the full 10% allowance. 

Im not sure this is the case with all lenders so you may need to check with the bank you are with. I am with Halifax and have overpaid my mortgage by 10% every January, this overpayment has never resulted in overpayment charges from my regular monthly payments and they have never amended my payments or term until i get to the end of my fixed period

They said we could overpay on top of our normal monthly repayments by 10% of the outstanding debt (a different answer to what we got this morning) but they'd have to recalculate our monthly payments. 

Which is to stop you incurring charges for exceeding the 10% limit. 

Thrugelmir

prestonmike said:

Thrugelmir said:

By making a lump sum overpayment. You will immediately reduce the monthly interest charge. Meaning that on an ongoing basis of your standard monthly repayment, more will go to reducing the capital balance owed (for the remander of the current year).  Resulting in you exceeding the 10%. Pay off 8% now, when you get to the final month of the year. Pay the maximum you are allowed to utilise the full 10% allowance. 

Im not sure this is the case with all lenders so you may need to check with the bank you are with. I am with Halifax and have overpaid my mortgage by 10% every January, this overpayment has never resulted in overpayment charges from my regular monthly payments and they have never amended my payments or term until i get to the end of my fixed period

There's been questions regarding NatWest on this very topic before.  Where charges were levied.