Overpayments on Barclays mortgage
Hi all, first post in this forum, apologies if it is TL;DR.
I have a Barclays 5 year fix mortgage that has some 1.5 years remaining until the end of the fix. Mortgage contract says that overpayments are allowed up to 10% per year.
Apparently Barclays mortgages, or at least the one I have, allow for two different types of overpayments:
1. Part redemptions - these reduce the contractual monthly payments.
2. Overpayments that go to the so-called 'Pre-payment balance'. These are limited to three times the contractual monthly payment and don't reduce the contractual monthly payments, but still reduce the amount of interest being paid, as daily interest is calculated on the amount of the outstanding principal balance minus the pre-payment balance.
The mortgage contract doesn't explicitly distinguish between these two; however, it appears that Early Repayment Charge only applies to part redemptions (first type). I have had multiple conversations with Barclays agents, and regardless of how I formulate my query, the answer is always the same - small overpayments (second type) that do not count as part redemptions never attract ERC, even if their cumulative amount goes above the 10% yearly allowance. This almost sounds too good to be true, as it effectively allows the borrower to accumulate as much as they want in the pre-payment balance, reducing the effective balance on which interest is paid to zero, with no penalty whatsoever.
Here is a possible scenario:
Outstanding balance £210,000 (for example) with £1100 monthly payment
Let's say that I have £210,000 sloshing in my savings account
I can make 70 individual small "type 1" overpayments of £3000 each, which will result in me having £210,000 in the "pre-payment balance", reducing the amount I pay interest on to zero. According to what the Barclays agents have told me, this is allowed, and will result in no ERC, and I will pay no interest whatsoever.
I am struggling to believe that the above scenario will be actually allowed with no penalties, as the bank will earn nothing in interest, and from the bank's point of view will be the same as me paying off the mortgage early and bypassing the control that is meant to prevent that (the ERC).
Does anyone have any experience with such a scenario with Barclays? Any view or comment would be much appreciated. Thank you in advance!
★ ★ ★ Meet your Ambassadors
- All Categories
- 341.7K Banking & Borrowing
- 249.7K Reduce Debt & Boost Income
- 449.1K Spending & Discounts
- 233.9K Work, Benefits & Business
- 606K Mortgages, Homes & Bills
- 172.5K Life & Family
- 246.8K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.8K Discuss & Feedback
- 15.1K Coronavirus Support Boards