Overpayment Confusion

carbonm

Hi I am a bit confused about shortening the term vs reducing monthly payment. As we are now overpaying by £500 a month the bank automatically reduces our monthly payments. I've asked if we can keep them the same but we can't unless I reduce the overpayment under £500. I could ask to reduce the term but I want the flexibility of keeping the term the same in case my circumstances change. So my question is am I getting any benefit by paying over the £500 if they are reducing the monthly payments? I don't want to change mortgage provider as we are on a good deal right now. Any advice appreciated!

Thriftmaster1973

Yes, you need to ask your bank to accept the overpayment, but keep the term "as is" and keep the normal monthly payment "as is".

Nationwide ask you if you want it to be done this way or the other way which reduces monthly payment.

Thriftmaster1973

Keep the monthly payment "as is" - this will lower the debt quicker but still leave the term remaining.

Numberwang_2

carbonm said:

I've asked if we can keep them the same but we can't unless I reduce the overpayment under £500. 

Reduce your overpayment to £499.99

carbonm

Thanks for the replies, I don't think I explained very well.

I currently pay £1000 a month, so I am overpaying by more than £500, this means my minimum monthly payments are reduced automatically.  At the same time my capital payments are going up every month.

The bank will not let me keep my minimum monthly payments the same but I don't want to reduce the term.

Is it worth continuing to overpay by more than £500 or should I reduce them and save the extra cash until I have enough to pay off the mortgage?

powerspowers

I think either your payment goes down or the term reduces - you can’t keep both the same as your overall debt is reduced? Not sure it makes a difference, as a reduced payment means you overpay more each month thus reducing the capital owed. 

happymum37

Reduce your overpayment to 499 and don't do it automatically.  Ring up and pay it off every month and tell them its off your term. that's what we have to do

Sistergold

Even though the minimum payment is going down if you continue overpaying by £1000 your capital is reducing also the interest is reducing. I like overpaying and letting the monthly payment go down as it means if there should be some money problems I have minimal monthly obligations. So you don’t really need to stop the £1000 overpayment. When the minimum payment is too low for you at remortgage time you can shorten the term to increase to the minimum monthly payment to the level you want. 

South_coast

Could you make two payments a month of £499.99 each? My lender would recalculate the payment if I paid off £1k+ in a single payment, as they classed that as a partial redemption. So if I had more than that available to repay, I sent them £999.99 one week and the rest a week later

South_coast

powerspowers said:

Not sure it makes a difference, as a reduced payment means you overpay more each month thus reducing the capital owed. 

The difficulty with this comes when you reach a lower balance - if you're capped at 10% per year for OP's then you want your monthly payment to be as high as possible, as you're going to burn through your OP allowance much faster if you continue to repay the same £ amount each month after your payment is reduced

carbonm

South_coast said:

powerspowers said:

Not sure it makes a difference, as a reduced payment means you overpay more each month thus reducing the capital owed. 

The difficulty with this comes when you reach a lower balance - if you're capped at 10% per year for OP's then you want your monthly payment to be as high as possible, as you're going to burn through your OP allowance much faster if you continue to repay the same £ amount each month after your payment is reduced

I'm not capped so I can overpay as much as I want a month. I think powerspower may be right as if I am overpaying more capital as the payments reduce would it make any difference to the interest I paid compared to if I reduced the term?