Mortgage overpayment question

LWill

Hi, I am trying to understand our current position and would be very grateful of any advice here.

We are on a 14 year capital repayment mortgage with the current rate set at 1.69%. 

The repayment was set up as £931.53 a month but we set up a 'flexible payment' of £1500 a month and then have been overpaying an additional £300 via standing order.

We have a 10% overpayment allowance, which renews on the 25 of July but with £669.17 currently remaining we would incur a 1% ERC on the amount we have gone over by if we continued as we are for May, June and July.

Am I right in reading that this 1% charge would be charged annually for as long as we hold this mortgage?

I thought the best plan here would be to stop the £300 standing order immediately, let the 'flexible payment' of £1500 go out in May but then revert to our standard £931.53 for June and July and therefore we would not be going over our 10% allowed over payment.. But.. the person we spoke to at the bank said that if we amend the £1500 flexible mortgage amount the system would recalculate the terms of the mortgage and our set monthly payment would have to reduce due to the length left in the mortgage..

I'd appreciate if anyone can shine some light here. Many thanks in advance!

Will

getmore4less

Which lender they all have slightly different rules.


How long does the ERC run for  when does it drop from 1% to 0%
.
Some lenders allow the regular payment to still get paid without ERC some don't


Resetting the payment  is not as bad as people think as you can still overpay 

LWill

HSBC. The details are given as:

'liable to pay an Early Repayment Charge when you repay the whole or part of the loan, over and above your standard monthly payments, during the ERC period which ends on the 30th of September 2022.

The ERC is 1% of the amount repaid early (above any overpayment allowances) for each remaining year of the ERC period (the first year commencing on the date of Drawdown and subsequent years on the anniversary of the date of Drawdown) reducing on a daily basis. '


So the resetting the payment that we were spoken to about seems right? I was shocked to be honest as I thought if we set up a 'flexible payment' of £1500 that would allow us to return to our standard payment of £931 if we wanted to..

I understand that we can still overpay if the reset payment is less but unless I am mistaken it will affect the total amount of the mortgage we are able to pay off for that year.. 

Thanks,

Will 

Thrugelmir

What people overlook is that by making overpayments during a year. That this reduces the amount of interest charged. By maintaining the normal monthly repayment. This can cause the annual overpayment allowance to be exceeded. Thereby incurring an ERC penalty. 

LWill

I do understand that and have been keeping a close eye not to exceed the overpayment allowance. What has caught me out is that I thought I would be able to reduce the 'flexible payment' amount that I requested to the monthly payment amount that was set up with the mortgage..

Even when I read the documentation received after setting up the 'flexible payment' it reads 'You may change your flexible payment at any time providing it is not less than the standard payment amount required. ' 

But HSBC if I understand correctly, are telling us that they will need to reduce that amount and the amount that we will be able to pay over the year will therefore be less and therefore more interest paid over that year..

Thanks,

Will

getmore4less

Thrugelmir said:

What people overlook is that by making overpayments during a year. That this reduces the amount of interest charged. By maintaining the normal monthly repayment. This can cause the annual overpayment allowance to be exceeded. Thereby incurring an ERC penalty. 

Some lenders don't count the regular payments.

Some don't count small overpayments.

getmore4less

LWill said:

I do understand that and have been keeping a close eye not to exceed the overpayment allowance. What has caught me out is that I thought I would be able to reduce the 'flexible payment' amount that I requested to the monthly payment amount that was set up with the mortgage..

Even when I read the documentation received after setting up the 'flexible payment' it reads 'You may change your flexible payment at any time providing it is not less than the standard payment amount required. ' 

But HSBC if I understand correctly, are telling us that they will need to reduce that amount and the amount that we will be able to pay over the year will therefore be less and therefore more interest paid over that year..

Thanks,

Will

Often that difference is not much 
With a rate of 1.69% max £17/£1k you can't overpay

Thrugelmir

getmore4less said:

Thrugelmir said:

What people overlook is that by making overpayments during a year. That this reduces the amount of interest charged. By maintaining the normal monthly repayment. This can cause the annual overpayment allowance to be exceeded. Thereby incurring an ERC penalty. 

Some lenders don't count the regular payments.

Some don't count small overpayments.

Whether the allowance has been exceeded is computed at the end of the calendar year. Straightforward algorithm to determine. We've had threads previously where NatWest is a lender that seems to impose even what might be regarded as small penalties regardless. 

getmore4less

Thrugelmir said:

getmore4less said:

Thrugelmir said:

What people overlook is that by making overpayments during a year. That this reduces the amount of interest charged. By maintaining the normal monthly repayment. This can cause the annual overpayment allowance to be exceeded. Thereby incurring an ERC penalty. 

Some lenders don't count the regular payments.

Some don't count small overpayments.

Whether the allowance has been exceeded is computed at the end of the calendar year. Straightforward algorithm to determine. We've had threads previously where NatWest is a lender that seems to impose even what might be regarded as small penalties regardless. 

 That's not how it works works with all lenders


At least one lender(Barclays )allows upto 3 times the  regular payment without it counting towards the ERC limit on some of their mortgages

LWill

Logged into our account I can see that we will be above our overpayment limit by £1036.24 for June and July until our overpayment allowance resets. So perhaps I am over worrying if I am correct in that the charge will be 1% of this 'for each remaining year of the ERC period.. which ends on the 30th of September 2022. ' !

What I am still confused about though is that we are being told that we cannot amend our 'flexible payment' that we set up of £1500 back to the original payment amount of £931.53 that was set up on our mortgage.. Even though we were not advised of this and the documentation reads: 'You may change your flexible payment at any time providing it is not less than the standard payment amount required. ' 


Does this seem correct and usual to people?

Thank you,

Will

getmore4less

The ERC will not be 1% per year it will be a single x%  depending how may years are left.

looks like that is going to be 2%



I don't think they are saying you can't change the payment just they will recalculate for full term to take account of the overpayments and that will be your new "standard payment required".


You are probably better off letting that happens and avoiding any ERC in this period and just make a larger first overpayment after the reset.

you cannot recover the 2% ERC  with only a few months to go to reset. on 1.69% thats   only 0.141% per month 4months will give you <0.6% back.


On £1k  that s a £20 charge and you get back max £6