Mortgage Overpayments whilst on fixed rare term

Ceekay742

Mortgage Overpayment whilst on fixed term.

I made an overpayment last year whilst on a fixed 5 year deal and now its been 12 months I am looking to do the same again. My mortgage company informs me that 10% of the outstanding amount is the max allowed but it will only reduce my monthly payments. I have told them I want it to reduce the length of the mortgage (especially since it will take me past retirement age otherwise) but they just tell me that its not possible. I have asked them what happened to my last overpayment a year ago since I have not noticed any monthly reduction and they have said that this will now start showing as my reviews / statements occur in Dec of each year and I made my overpayment in Jan so it would be almost a year after the Jan overpayment before I would see a reduction in the monthly mortgage debits. I requested that the overpayments be used to reduce the overall term of the mortgage to alter its end date but was told this is not possible.
Is this just individual mortgage companies decision or just a fixed rate condition or generally up to the individual lenders themselves?
Am i better just keeping my saved overpayment monies until such time as I can pay it to reduce the length of the mortgage or is reducing the interest amounts still the way to go anyhow?

Any advice greatly appreciated.

K_S

@ceekay742 Generally speaking it's up to individual lender policy. However, most lenders calculate interest on a daily basis, so you can rest assured that an overpayment you make will reduce the capital owed immediately and hence start saving you interest right away.

From an interest savings point of view, you don't necessarily need to reduce the term to see the benefit. Martin explains this clearly here https://blog.moneysavingexpert.com/2014/10/dont-shorten-your-mortgage-term-if-you-can-overpay/

getmore4less

The full term just sets the min payment.

What you pay determines the actual term.

if they reduce your payment, start overpaying a bit more each month.

Generally the sooner you overpay the bigger the savings

Just need to watch those 10% limits.

Ceekay742

Thanks for the advice guys.

Im already paying off 10% at the beginning of each year so cannot increase my monthly payments, but in any case they are reducing my monthly payments now and I requested that they remain the same but apparently its not possible and even if they did let me I suppose that would exceed my 10%.
I paid 10% off the outstanding balance a year ago but they never reduced my payments until around now as they stated that they assess it each year see how much is left owing (assessed 1month after I paid 10% so not re-assessed for 12 months unless requested) spread it back over the full term of the mortgage, hence reducing the amount to pay each month instead of the years left to pay unfortunately.

Am i best to pay my 10% again this year or wait until the fixed term period finishes which is another 2.5yrs yet?

MovingForwards

If you say what lender you are with, people may be able to suggest what you need to do / say to get what you want.

Bluebell1000

For us, the decision was based on interest rate. I.e whether we could earn more having the money in cash savings then reduce the term at the end of the fixed rate with a lump sum payment, or whether paying the money off the mortgage yearly and remortgaging onto a shorter term when the fixed rate ends would be better, because the mortgage is higher interest than savings. 

As it turned out, we kept the money in savings until covid when the interest rates dropped, and we've been paying the max overpayment since. Our lender charges us to reduce the term while in the fixed rate, so we have just let them reduce the payments. The fix ends shortly so we'll be able to reduce the term then.

getmore4less

If you overpay the 10% the reduced payment makes a small difference anyway.

Just save excess untill the end of the fix when you can overpay as much as you like.

Does not help there is no information on the actual mortgage.

Ceekay742

Thanks for the comments everyone much appreciated.

FYI: The mortgage was for £110,000 over 15yrs, we are around 2.5 yrs into this at present on a fixed 5yr deal at around 2.5%

Thrugelmir

If you maintain your existing payments. Then you'll exceed the 10% allowance and incur an early payment charge. 

To formally reduce the mortgage term the lender will need to perform a full affordability check. This will incur an administration charge. 

Continue to maximise your annual 10% annual allowance. Once the fixed term ends , allow the mortgage to fall onto SVR,  overpay by as much as you can afford, then refix the mortgage product.