Confused over 10% mortgage overpayment??

getmore4less

kimwp said:

getmore4less said:

kimwp said:

getmore4less said:

kimwp said:

getmore4less said:

kimwp said:

getmore4less said:

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.

Yes - the term is reduced on the mortage statements.

I'm not sure what you mean by "contractual as a hard end date" - the full term can be reduced by overpaying or arranging to increase the monthly, which implies it isn't a hard end date in that it can't be moved. The minimum monthly payment is calculated on the amount outstanding and the agreed term (which can be re-agreed) - it is a matter of maths, there are no contractual clauses that describe the calculation.

You seem to think that the originally agreed term end can't be changed - I'm curious as to how you think people pay their mortgage off early?

I am not saying you can't pay off sooner,  the hard end date the agreed term is the latest you can pay it off. there will be something that says the borrowing is amortised over the term calculating the payment.

It is certainly not true for all mortgages that the contractual full term can be changed by overpayments I have one with Barclays.

To change the term permanently commits to the higher payment

 

Saying that the borrowing is amortised over the term just means that the remaining owed (including expected interest) is divided into equal payments so you pay the same each month.

From Barclay's website:
https://www.barclays.co.uk/help/mortgages/repayments-rates/monthly-payment-amount-reduced/

If you are not allowed to make overpayments, then obviously you can't use them to reduce the term. But if you can make overpayments, then (according to the above link - because the alternative to reducing the payments is reducing the term) the term can be reduced without permanently increasing payments.

If you make an overpayment, you now owe less. The possibilities are to reduce the amount of each payment or reduce the number of payments made (ie reduce the term) otherwise you will pay too much. Therefore this is changing the term without committing to a permanent higher payment because there is no increase to the permanent payment. An overpayment is a payment over and above the permanent payment, not a change to it.

What that link says is you can leave your payment at the higher level if you want, which is different to reducing the contractual term which they don't do

I think we are probably talking at cross purposes. Barclays may not reduce the contractual term, but the remaining term is reduced - which is what reduces the amount of interest you pay by making overpayments.

quite 

 as I keep telling people.

The contractual term determines your min payment
The payment determines your actual term.

@getmore4less, in the interests of trying to understand if I have missed something, I have combed through my mortgage agreement, annual mortgage statements and summaries and the Nationwide General Mortgage Conditions - "contractual term" isn't featured anywhere, only "remaining term", which has reduced as I have made overpayments. Barclays Mortgage glossary features does have "contractual remaining term" and "outstanding remaining term", possibly related to the fact that they (according to your earlier post) allow reversion to the minimum payment based on the originally agreed term end date.

It might be worth considering that if you start talking about "contractual term", it might be worth specifying how this is different from actual term to avoid confusion as if someone has "term" in their Ts&Cs, they could easily draw the conclusion that they are one and the same thing.

I'm now pondering what situations would result in monthly payments being higher, such that you could then reduce them to the minimum based on the outstanding part of the "contractual term"?

call it what you like, the contractual term is the date you signed up to finish your mortgage, with my lender that does not change unless you go through the affordability process again  that is true of others, 

Maybe not nationwide and they let you change the contractual end date with overpayments 

Try asking them if you can switch back to the term you signed up or at the start without any check and have your payment recalculated.

There are for most people the contractual term the one they have to have paid off their mortgage and that cannot be changed without checks  then a potential estimated variable remaining  term if they keep up the current  payments overpayments and the rate does not change but that cannot exceed the contracted end date  term

For many the first does not change unless they ask and go through the adjusting term process  

Pretty obvious where you may need to reduce the payment because it has gone higher than what you started with.
Your rate goes up and the payment is higher than the one you started with.

If as a result of overpayments you reduced your contractual end date you are now stuck with that higher payment unless you extend the term (which may require new affordability checks) or overpay to bring the payment down.

 

Thrugelmir

When you take out a mortgage there is a contractual end date by which the money borrowed has to be repaid.  Simply voluntarily overpaying the mortgage with the aim of settling the debt earlier than this date does not alter this. 

To amend the contractual end date to either shorten or lengthen the term requires agreement of both parties. From the lenders perspective, they have a duty to ensure that shortening the term would be affordable. In this regard that the borrower could withstand the impact of a considerable rise in the interest rate charged, to say 5% - 6%. 

In order to recalculate future payments. All a lender need do is ascertain the monthly amount to repay the debt by the contractual end date. The reason behind the borrowers request is of no consequence. Providing the terms of the contract are being adhered too. 

Normally overpaying while leaving the contractual term unchanged is the best thing to do. As provides maximum flexibility.  Overpaying providing a degree of insurance against higher interest rates in the future. Thereby minimising the risk of a sharp increase in monthly outgoings. 

kimwp

Worth noting that with Nationwide, when I make an overpayment, the term is reduced (they just say "term"), but the overpayment reserve can be used to make underpayments or even be borrowed back so there's no additional restrictions  due to bringing the term forward with overpayments (with Nationwide) - so there's the benefit of moneysaving with the peace of mind that the overpayment can be used for future payments if necessary.

getmore4less

kimwp said:

Worth noting that with Nationwide, when I make an overpayment, the term is reduced (they just say "term"), but the overpayment reserve can be used to make underpayments or even be borrowed back so there's no additional restrictions  due to bringing the term forward with overpayments (with Nationwide) - so there's the benefit of moneysaving with the peace of mind that the overpayment can be used for future payments if necessary.

If the overpayment reserve remains intact that a pretty good indicator that the original contracted term does not change.

When you withdraw the reserve does the term back up a longer term or the payment go up?

Would also suggests that the "term" is just an estimate of what the end date might be if things stay the same(payment, reserve, rate),  not a new reduced term that you are committed to, the contracted term stays the same .

I also suspect that any requested real change in full term might require the reserve to be capitalised as permanent overpayment.

kimwp

getmore4less said:

kimwp said:

Worth noting that with Nationwide, when I make an overpayment, the term is reduced (they just say "term"), but the overpayment reserve can be used to make underpayments or even be borrowed back so there's no additional restrictions  due to bringing the term forward with overpayments (with Nationwide) - so there's the benefit of moneysaving with the peace of mind that the overpayment can be used for future payments if necessary.

If the overpayment reserve remains intact that a pretty good indicator that the original contracted term does not change.

When you withdraw the reserve does the term back up a longer term or the payment go up?

Would also suggests that the "term" is just an estimate of what the end date might be if things stay the same(payment, reserve, rate),  not a new reduced term that you are committed to, the contracted term stays the same .

I also suspect that any requested real change in full term might require the reserve to be capitalised as permanent overpayment.

Or.....a feature of the mortage is that you can build up the overpayment reserve, which has a certain amount of flexibility.

I haven't used this facility, so cannot comment.

I agree with this definition of term. "Contracted term" does not appear in any of my mortgage paperwork, only "mortgage term" which appears on my annual statements and overpayment letters and also on the letter I received after increasing my minimum mortgage payment.

When I increased my minimum monthly payments, I could achieve an increase based on affordability and a larger increase if the overpayment reserve was no longer available for me to use for future underpayments or withdrawal.

TVAS

Next time contact the lender and ask them the best thing to do. You did it the other way around you paid 10% and your DDM was set to an overpayment and then you asked the lender.

You are now getting conflicting answers from the different idiots you have spoken to. I can see this going tits up and you suffering an ERC. 

Google ceo email and the lender name and email him or her as you are getting nowhere with the divvy staff. Take back control.