Mortgage overpayment limits

saver2000

Hi all,

I've been thinking of overpaying my mortgage early but I am a bit confused regarding the overpayment limits.

Eg. The overpayment limit on mine is 10% of the yearly balance, but how is this calculated? Is this the year from April to April? Or the month when I started the mortgage? Do they look at the year on a rolling basis, so every payment I make they check the balance from 12 months ago, then do the 10% check against that?

Surely as well, if I overpayed by a certain amount each month as time went on the 10% will become smaller so there is more of a chance of hitting the limit. Or do you have to recalculate each month and adjust overpayments to make sure you don't hit the limit?

Totally baffled by this, most mortgage calculators tell you how much you will save but no word on the limits. The one on this site lets you put in a yearly percentage but doesn't show how much I would pay each month or whether that would have to vary. (Although I doubt I could even hit the 10% in the first few years without doubling the payments)

Thanks

LadyGnome

Different mortgages have different ways of calculating it.  Who is your mortgage with?  You will need to check the details of the terms and conditions.  I think mine runs annually from the date of my last fix but is 10% of the original value (Nationw1de)

themadvix

With Santander it's calculated annually in January as 10% of the outstanding loan. If you log on to make an OP, it shows you exactly how much of the annual allowance you have left before you start paying ERCs.

jimjames

As above it really depends on the bank so you'd need to check their T&Cs. Nationwide is based on the date the product was taken out so can reset if you move to a new fixed rate. The 10% is original balance too so can make a big difference in later years. 10% of £200k gives a lot more headroom than 10% of £20k! I guess for one that is based on reduced balance it would have to be the amount at start of year so you could calculate it.

saver2000

I've been looking into this a bit more, if I remember correctly when I last looked at the natwest site I think it said the 10% is calculated yearly after the start of the mortgage term.

I have a fixed deal for 5 years (currently 1 year and 7 months in). On the Natwest website it says overpaying does not reduce the term (unless I pay a fee) and obviously my main payments are fixed.

So I assume when I leave the fixed rate my monthly payments are recalculated to fit in the term?

I also guess it's not worth paying the fee as I'll probably be doing a new deal when the fixed rate ends. Overpaying is going to have the effect I want anyway (reducing the balance)

South_coast

My mortgage was with NatWest and you're absolutely right, overpayments won't change the term. If you overpay by £1k or more in a single payment they will recalculate your payments, but still to the same term (mine ended up at £12.99/month towards the end). When you get to the end of your fix, they'll recalculate your monthly payment based on your balance and term outstanding. However, sooner or later your term ends anyway, as you have nothing left owing 😀

As for the date that the limit resets, it's from the anniversary of drawing down the mortgage, so I'd recommend doing a live chat with them each year and they'll let you know how much you can pay