Confused by Abbey overpayments!!

foreversummer

Hi

I hope some of you knowledgeable folk can help.

I have a mortgage with the Abbey and would very much like to make overpayments. I am allowed to make a maximum of 10% per year (won't be anything like that much unfortunately). However, I have phoned them today and they say the minimum one-off overpayment is £500, but that I can in fact increase my monthly direct debit and this will reduce the term of the loan.

However, I've just found the Standard Mortgage Conditions booklet which I received when I first got the mortgage, and it is basically saying this:

"14.3: If you make an extra payment:

(a) ......

(b) If you take the steps mentioned in condition 14.4, we will treat the extra payment as money received for the credit of your mortgage account, so that it will immediately reduce the capital under condition 12.1(c).

(c) If you do not take the steps described in condition 14.4, we will be unable to treat the extra payment as money received for the credit of your mortgage account. Instead, we will keep the extra payment (but without paying you any interest on it) and put it towards your subsequent monthly payments.

14.4 If you wish us to treat an extra payment as money received for the credit of your mortgage account, you must tell us when you make the extra payment that you wish us to use it in this way; and make the extra payment by cheque.

Obvious 14.4 does not apply to me as I am unable to pay £500 or above. But what on earth does "Instead, we will keep the extra payment (but without paying you interest on it) and put it towards your subsequent monthly payments."? Makes it sound as if they are going to keep the overpayment and benefit from the interest on it and it will not reduce my capital at all. Surely this cannot be right.

I'm really sorry for the long post and to quote the legal jargon, but any thoughts appreciated.

Foreversummer

jill2002

Hi

It means that if you overpay by say £200 per month, they will not reduce the capital but put it towards your next mortgage payment and the direct debit for the next month will be £200 less. Therefore no ovepayment made. Minimum overpayments are £500.

However, if you ask them to reduce the term of the mortgage (assuming you have a repayment mortgage) then this will increase your payments - you can ask them to make it so the payment is £200 extra. This will not work if you have an Interest Only mortgage.

Hope this helps.

Little_Mama

When I spoke to them they confirmed what Jill says above but that once I'd reduced the term I couldn't then extend it back.

If you're not sure about how much you can commit to it may be best to save the money and forward a cheque to them every time you hit £500....oh and, apparently a cheque is the only way to do it, they only let you make a normal monthly payment over the phone.

LM

foreversummer

Thank you for your replies. I sort of get it.

My plan was this. I am currently on a tracker mortgage so the interest rate has just gone down. I'm quite used to paying the higher amount, so I thought it would be a good idea to remain paying what I am paying now, then if the mortgage rate goes down again I will be overpaying even more without even noticing it.

I did ask that if I decided to go back to just my normal payment at any time would this be possible without penalty and she said yes, so I am quite concerned that you were told differently Little Mama.

I've told them to go ahead and she told me they would write to me. Perhaps I should ring again to clarify this.

Foreversummer

Little_Mama

Hi Foreversummer,

My circumstances may be different as I am on a fixed rate mortgage taken out 9 years ago! Either that or I got the newbie!

I would just call for clarification though, just to put your mind at ease.

LM