Mortgage overpayments

girlie1412

Is this a good deal regarding overpayments? 

“If you make an overpayment (i.e. any payment that is greater than your monthly payment amount and any other amounts you owe us such as arrears of monthly payments, fees or expenses) of, or series of overpayments that amount to, less than £5,000 unless we agree otherwise we will not apply this to reduce your loan balance but it will reduce the amount of interest you have to pay. Your monthly payments will remain the same. If you overpay in one month this does not mean you can underpay in a later month. In circumstances where your total overpayments amount to less than £5,000 and we have not applied the overpayments to reduce your loan balance, once you have paid down your loan so that the outstanding loan balance equals the amount of your overpayments, you will have repaid the loan. If we do agree to apply an overpayment of less than £5,000 to reduce your loan balance you may

 

have to pay an early repayment charge and an administration fee and we may change the amount of your monthly payment in accordance with condition 5.12. We will tell you in your mortgage offer letter whether you have to pay an early repayment charge and how the early repayment charge is worked out. Any administration fee is set out in our tariff.

5.16 If you make an overpayment of, or a series of overpayments (during the term of the loan) that amount to, £5,000

or more we will use this to reduce your loan balance. You may have to pay an early repayment charge and an administration fee. We will also change the amount of your monthly payment in accordance with condition 5.12 unless we agree otherwise. We will tell you in your mortgage offer letter whether you have to pay an early repayment charge and how the early repayment charge is worked out. Any administration fee is set out in our tariff.

5.17 If you make an overpayment we will not refund the overpayment to you unless it is greater than your loan balance in which case we will refund any difference to you.

6. Interest

How we charge you interest

6.1 We will charge you interest on everything you owe us under our agreement with you (including unpaid interest, fees and expenses) unless we tell you otherwise.

6.2 We start charging you interest on money we lend you under our agreement with you from the day we lend it.

6.3 We calculate interest on the balance of your loan each day and we apply interest for the month to your account on last day of the month.

[Deleted User]

Those sections seem normal to me but without seeing a full agreement doubt anyone will comment really.

getmore4less

Missing information.

Which lender.

The may charge ERC admin what are the conditions when that happens.

Also £5k over term of mortgage is not a lot unless it resets but nothing suggest it does.

Could be extremely restricted overpayment options.

K_S

@girlie1412 Well, there isn't enough information to say for sure but at first glance it looks a lot less generous than the kind of penalty-free overpayment allowances (usually termed as a 'flexible feature' in the mortgage offer) offered by most mainstream lenders.

A typical one would allow you to overpay by up to 10% of the outstanding mortgage amount without any penalty/ERC and this allowance resets every year (the exact reset point will either be the 1st of Jan or every 12 calender months after completion).

Here's an example -

girlie1412

Lender is Kensington Mortgages 

K_S

girlie1412 said:

Lender is Kensington Mortgages 

@girlie1412 If it's a Flexi Fix, then you still should have a 10% annual o/p allowance. If it's a normal fix then it appears pretty restrictive.

Given that you are using Kensington, I'm assuming that your options are limited for whatever reason. But if you intend to make substantial overpayments during the term of the mortgage, perhaps mention that as a priority to your broker so they can suggest alternative options if any. 

girlie1412

K_S said:

girlie1412 said:

Lender is Kensington Mortgages 

@girlie1412 If it's a Flexi Fix, then you still should have a 10% annual o/p allowance. If it's a normal fix then it appears pretty restrictive.

Given that you are using Kensington, I'm assuming that your options are limited for whatever reason. But if you intend to make substantial overpayments during the term of the mortgage, perhaps mention that as a priority to your broker so they can suggest alternative options if any. 

Our options were very limited due to past credit history. I am hoping to make overpayments of at least £10.000 per year I was of an understaing that I can make whatever overpayments and only first £5000 is resulting interest and anything above £5000 will start reducing capital and as such term if the mortgage. With regards to admin fee and fix rate we are 5 year fixed and I understand that if we are to pay mortgage in full prior to 5 years we will be faced with the change .. this is all very new to me and it is somewhat restricting how I will proceed 

getmore4less

All overpayments should reduce capital, therefore the interest paid.

The £5k limit looks to be a recalculated payment trigger.

K_S

girlie1412 said:

K_S said:

girlie1412 said:

Lender is Kensington Mortgages 

@girlie1412 If it's a Flexi Fix, then you still should have a 10% annual o/p allowance. If it's a normal fix then it appears pretty restrictive.

Given that you are using Kensington, I'm assuming that your options are limited for whatever reason. But if you intend to make substantial overpayments during the term of the mortgage, perhaps mention that as a priority to your broker so they can suggest alternative options if any. 

Our options were very limited due to past credit history. I am hoping to make overpayments of at least £10.000 per year I was of an understaing that I can make whatever overpayments and only first £5000 is resulting interest and anything above £5000 will start reducing capital and as such term if the mortgage. With regards to admin fee and fix rate we are 5 year fixed and I understand that if we are to pay mortgage in full prior to 5 years we will be faced with the change .. this is all very new to me and it is somewhat restricting how I will proceed 

@girlie1412 Kensington 5 year fixes usually have ERCs. Here's an example (just to be clear this is simply a random Kensington 5-year fix shown for illustration purposes only so may not the same for your specific product)


However, depending on what the interest rate is on your product, it may still make sense overall to make an overpayment even with an admin fee and ERC. But that depends on the specifics and you will need to crunch the numbers are see for yourself.

It's all a compromise so you need to assess the pros and cons, and what's more important to you. 

I don't know your circumstances or the specific product you are using, so don't want to unknowingly mislead/misinform you. I would recommend speaking to your broker and understanding clearly how overpayments work with the specific mortgage product that you are applying for. Good luck!

getmore4less

Might a shorter fix make more sense.

Will the large overpayment improve LTV and get a better rate
Will other lenders  become available.

If your ERC rate drops then timings of overpayment is important because the savings change and it can be better to wait till the next drop of ERC.

Many make the mistake of thinking saving is the rest of the term.

K_S

@getmore4less I imagine the OP needs a 5 year fix to hit the required borrowing figure. Specialist lenders tend to lend more at 5+ year fixes compared to shorter ones.