Confused over 10% mortgage overpayment??

Tuffnjay

Hi yesterday I paid off an extra 10% on my mortgage for the forthcoming year. normally I overpay each month to stay within the 10% without incurring charges. I asked my ddr to be put back to my agreed monthly payment as obviously couldn't continue with monthly overpay as I'd paid it up front. Today they have reduced my ddr going forward by 95.00 from my original agreed rate, I spoke to someone yesterday who told me it would go back to £527 my normal rate and today it £448, today on phone lady said that's correct as it calculates my overpayment, my head says it should stay at £527 because it meansI will pay off just over £900 less per years than I would have done the other way.. I'm confused.

Thrugelmir

By overpaying with a lump sum. You will proportionately pay less interest for the remainder of the calendar year. If you maintain your DD at the normal level. You will repay more capital (as incur less interest every month) and as a result infringe the 10% annual overpayment allowance. Incurring penalties as a result. 

kimwp

Not sure if I have understood your question correctly -

Your agreed mortgage monthly payment not including any overpayments is 527? If so, it sounds like they have taken your overpayment into account, but kept the mortgage term the same, so reduced the monthly payments. And if so you need to ask them to reduce the term as a result of the overpayment rather than reduce the monthly payment.

Thrugelmir

kimwp said:

Your agreed mortgage monthly payment not including any overpayments is 527? If so, it sounds like they have taken your overpayment into account, but kept the mortgage term the same, so reduced the monthly payments. And if so you need to ask them to reduce the term as a result of the overpayment rather than reduce the monthly payment.

The term can only be amended if the borrower is not constrained by having a fixed term product. Which will result in ERC's being applied. Amendments and large one off payments need to made once a fixed term ends and before another is committed too. 

kimwp

Thrugelmir said:

kimwp said:

Your agreed mortgage monthly payment not including any overpayments is 527? If so, it sounds like they have taken your overpayment into account, but kept the mortgage term the same, so reduced the monthly payments. And if so you need to ask them to reduce the term as a result of the overpayment rather than reduce the monthly payment.

The term can only be amended if the borrower is not constrained by having a fixed term product. Which will result in ERC's being applied. Amendments and large one off payments need to made once a fixed term ends and before another is committed too. 

The term can be amended while being in a fixed period by 1. overpaying (and asking for that to result in a term reduction) or 2. asking the lender to amend the term by increasing the monthly payments;

1. If you overpay, you can stay within the overpayment allowance and not pay an ERC (early repayment charge) or you can go over the overpayment allowance and pay an ERC - it may be financially sensible to go over the overpayment allowance and pay the penalty, particularly with savings rates being so low.

2. If you ask the lender to amend the term, while you are in a fixed period, they will not reduce it to shorter than the remainder of the fixed period, but (providing you pass affordability) will reduce it towards this.

Source: I have both made overpayments (under and over the allowance) and arranged for my term to be reduced while being in my fixed period. Due to this my mortgage will be paid off within the fixed period. 

NB, above edited as I had confused "ERC" (Early repayment charge) with "redemption charge" (fee to redeem mortgage) at the time of initially writing it.

getmore4less

kimwp said:

Thrugelmir said:

kimwp said:

Your agreed mortgage monthly payment not including any overpayments is 527? If so, it sounds like they have taken your overpayment into account, but kept the mortgage term the same, so reduced the monthly payments. And if so you need to ask them to reduce the term as a result of the overpayment rather than reduce the monthly payment.

The term can only be amended if the borrower is not constrained by having a fixed term product. Which will result in ERC's being applied. Amendments and large one off payments need to made once a fixed term ends and before another is committed too. 

The term can be amended while being in a fixed period by 1. overpaying (and asking for that to result in a term reduction) or 2. asking the lender to amend the term by increasing the monthly payments;

1. If you overpay, you can stay within the overpayment allowance and not get overpayment penalty or you can go over the overpayment allowance and pay an overpayment penalty. The ERC (early repayment charge) may or may not be related to being in the fixed period while paying off your mortgage completely, but an overpayment will not incur an ERC unless it somehow causes the ERC terms to be triggered. In my case, the ERC is only related to the time left on the mortgage term, so I won't pay an ERC even though I will pay off my mortgage within my fixed period (and I think this is likely for others as well.)

2. If you ask the lender to amend the term, while you are in a fixed period, they will not reduce it to shorter than the remainder of the fixed period, but (providing you pass affordability) will reduce it towards this.

Source: I have both made overpayments (under and over the allowance) and arranged for my term to be reduced while being in my fixed period. Due to this my mortgage will be paid off within the fixed period. No ERC charged so far.

which lender?

lenders have different policies on how they treat overpayments and the regular payment some will allow it to remain at the previous level some don't.

Do any actually change the contractual term?

kimwp

getmore4less said:

kimwp said:

Thrugelmir said:

kimwp said:

Your agreed mortgage monthly payment not including any overpayments is 527? If so, it sounds like they have taken your overpayment into account, but kept the mortgage term the same, so reduced the monthly payments. And if so you need to ask them to reduce the term as a result of the overpayment rather than reduce the monthly payment.

The term can only be amended if the borrower is not constrained by having a fixed term product. Which will result in ERC's being applied. Amendments and large one off payments need to made once a fixed term ends and before another is committed too. 

The term can be amended while being in a fixed period by 1. overpaying (and asking for that to result in a term reduction) or 2. asking the lender to amend the term by increasing the monthly payments;

1. If you overpay, you can stay within the overpayment allowance and not get overpayment penalty or you can go over the overpayment allowance and pay an overpayment penalty. The ERC (early repayment charge) may or may not be related to being in the fixed period while paying off your mortgage completely, but an overpayment will not incur an ERC unless it somehow causes the ERC terms to be triggered. In my case, the ERC is only related to the time left on the mortgage term, so I won't pay an ERC even though I will pay off my mortgage within my fixed period (and I think this is likely for others as well.)

2. If you ask the lender to amend the term, while you are in a fixed period, they will not reduce it to shorter than the remainder of the fixed period, but (providing you pass affordability) will reduce it towards this.

Source: I have both made overpayments (under and over the allowance) and arranged for my term to be reduced while being in my fixed period. Due to this my mortgage will be paid off within the fixed period. No ERC charged so far.

which lender?

lenders have different policies on how they treat overpayments and the regular payment some will allow it to remain at the previous level some don't.

Do any actually change the contractual term?

Nationwide and Accord, but looking at the Halifax, Santander and HSBC websites as a quick sample, they also do the same. They all have different policies about their automatic response to an overpayment, but you can reduce the term on all of them due to an overpayment.

When you take out a mortgage, you're not making a contract to make payments for a certain length of time, you're contracting to pay back a sum of money plus interest with various terms and conditions applied related to how you pay it eg you can make overpayments up to a certain amount without a penalty etc.

Tuffnjay

Thanks everyone my confusion was due to having overpaid every month for past two years and nothing else ever being changed before.  This time I made the 10% op at the beginning of the mortgage year hoping to reduce overall interest going forward. I understand what you have all said Id just assumed base payment would return to £527 for the remainder of the year, but by it being it dropped it makes me feel as if approx £980 will be paid less this year and therefore was false economy, I realise its my lack of understanding how interest occurs. Thanks for your replies.

Tuffnjay

My mortgage fixed term runs to 2023 and I am intending to hopefully be able to pay it all off at at that point therefore saving all future interest. Well that's the plan.

Thrugelmir

Interest is calculated daily and charged monthly. The monthly payment you make (on the 1st of the month ?)  clears the previous months interest and the remainder pays down the capital balance. Incrementally the amount of capital paid off increases. The sooner an overpayment is made the more benefit there'll be over the entire term of the mortgage. 

getmore4less

kimwp said:

getmore4less said:

kimwp said:

Thrugelmir said:

kimwp said:

Your agreed mortgage monthly payment not including any overpayments is 527? If so, it sounds like they have taken your overpayment into account, but kept the mortgage term the same, so reduced the monthly payments. And if so you need to ask them to reduce the term as a result of the overpayment rather than reduce the monthly payment.

The term can only be amended if the borrower is not constrained by having a fixed term product. Which will result in ERC's being applied. Amendments and large one off payments need to made once a fixed term ends and before another is committed too. 

The term can be amended while being in a fixed period by 1. overpaying (and asking for that to result in a term reduction) or 2. asking the lender to amend the term by increasing the monthly payments;

1. If you overpay, you can stay within the overpayment allowance and not get overpayment penalty or you can go over the overpayment allowance and pay an overpayment penalty. The ERC (early repayment charge) may or may not be related to being in the fixed period while paying off your mortgage completely, but an overpayment will not incur an ERC unless it somehow causes the ERC terms to be triggered. In my case, the ERC is only related to the time left on the mortgage term, so I won't pay an ERC even though I will pay off my mortgage within my fixed period (and I think this is likely for others as well.)

2. If you ask the lender to amend the term, while you are in a fixed period, they will not reduce it to shorter than the remainder of the fixed period, but (providing you pass affordability) will reduce it towards this.

Source: I have both made overpayments (under and over the allowance) and arranged for my term to be reduced while being in my fixed period. Due to this my mortgage will be paid off within the fixed period. No ERC charged so far.

which lender?

lenders have different policies on how they treat overpayments and the regular payment some will allow it to remain at the previous level some don't.

Do any actually change the contractual term?

Nationwide and Accord, but looking at the Halifax, Santander and HSBC websites as a quick sample, they also do the same. They all have different policies about their automatic response to an overpayment, but you can reduce the term on all of them due to an overpayment.

When you take out a mortgage, you're not making a contract to make payments for a certain length of time, you're contracting to pay back a sum of money plus interest with various terms and conditions applied related to how you pay it eg you can make overpayments up to a certain amount without a penalty etc.

Are you are seeing a reduced contractual term on your mortgage statements?

The full term is contractual as a hard end date, there should be clauses that describe how a  minimum monthly payment will be calculated.