Barclays overpayment vs part redemption

paul_kirsty

Hi All,

This is just an FYI - I have been chatting to Barclays about over paying my mortgage. Apparently there are two types: overpayment and part redemption. The overpayment is limited to 3x the monthly repayment amount and goes towards reducing the term. The part redemption allows up to 10% of the outstanding balance per year to be paid and is taken off the capital, reducing your monthly repayments. I didn't know about the two options until I queried why I couldn't do a 10% payment via the online over payment options. 

To do the part redemption and pay off capital, I need to do a bank transfer (but note I don't have a Barclays current account, which may be why).  Worth checking what you want to do.

Paul

Exile28

Hi Paul,

I've just recently remortgaged and I had similar queries. I was actually on the webchat to them yesterday about this. Apparently the overpayment is limited to 3x the monthly payment per extra overpayment amount.

Any overpayment over 3x of your monthly payment is classed as part redemption and reduces your monthly payments.

You can pay your entire 10% overpayment balance off in one day without it being classed as part redemption so long as you break each payment into lumps that are less than 3x of your monthly payment amount.

It seems silly to me but whatever I'll jump through the hoop and dance like a monkey if it saves me money.

You can make overpayments in one of four ways (three if you don't have another barclays bank account):

• Regular monthly overpayments by adding an overpayment element to your monthly direct debit
• Making an one off overpayment from another Barclays account (which I don't have)
• Making an one off overpayment from a debit card
• Making an one off overpayment via bank transfer to your mortgage bank account and sort number (with your mortgage account number as reference - please note this is 10 digits and is not the same as your mortgage bank account number).

I can confirm I have made overpayments to my Barclays mortgage from a non-Barclays account and from a non-Barclays debit card.

paul_kirsty

Yeah, that was the general gist I got as well, although I wasn't sure if there were penalties for the overpayment option. It does boil down to term reduction vs monthly repayment reduction and which you prefer as to which hoop you choose.

getmore4less

Barclays is one of the most generous overpayment providers as the up to 3x regular does not count towards the 10%

This makes it a very good option for those that want to overpay

Some brokers are unaware and may have recommended less appropriate products.

It's co.e up on this mortgage board a few times.

longtimelurker2020

getmore4less said:

Barclays is one of the most generous overpayment providers as the up to 3x regular does not count towards the 10%

This makes it a very good option for those that want to overpay

Some brokers are unaware and may have recommended less appropriate products.

First Direct takes it a step further by allowing unlimited overpayments. They don’t work with brokers / intermediaries however, so you’d have to apply directly to them. 

hareng

getmore4less said:

Barclays is one of the most generous overpayment providers

They wouldnt let us pay off 1 mortgage 18 months early, wanted every penny.
2nd morgage with them, still waiting for a refund in the overpayment they stated and deeds to the house 14 months on.

MoneySaverPhil

Hi All,

Found this thread as I've been speaking with Barclays recently about payments going towards reducing the term or reducing the capital. I have a question/thought that maybe someone here knows more about.

As people have mentioned when using overpayments for part redemption you can usually only use a maximum of 10% per year (of the remaining mortgage balance at the beginning of the period) but with overpayments for reducing the term you can overpay as much as you'd like (so I was told by Barclays team and it seems other people here are also under the same impression) this leads to the question which one is better and why do they let you overpay as much as you want when it comes to the term reduction?

My guess is when you use overpayments as part redemption, as it reduces the capital you are reducing the interest you pay too which is why they limit you to 10%. However, when you use overpayments for term reduction, you are effectively paying your monthly payments early so those payments still include the interest that you would have paid if you'd have paid them at the time you were originally going to pay them, therefore the lender still gets all the money they were going to get anyway which is why they let you pay as much as you want to that type of overpayment...

If what I say is correct then I would think that the part redemption would be the one to put money into until you hit the 10% limit (anything beyond that will have you hit with early repayment charges) as this would reduce the interest and therefore the total amount that you will pay in the end for your mortgage.

Am I wrong? ...can anybody else shed any light on this?

Thanks in advance

Newbie_John

Yeah it's very not clear with Barclays:
https://www.barclays.co.uk/mortgages/existing-customer-centre/overpayment-underpayment-explained/

But let's say you have £100k mortgage for 20 years and pay £500 a month for it.

1. If you overpay max 10% in one go = £10k (your remaining mortgage is £90k now), your monthly payment will change to something like £450 and you still continue paying for 20 years.
2. If you overpay less than 3x monthly payments - let's say £1500, then your mortgage monthly payment remains the same - £500 a month but your term will be less than 19 years and 9 months - let's say 19 years and 6 months - because you no longer pay your mortgage interest on these £1500 for 20 years.

That's at least how I understand it (only tried step 1 above, discovered step 2 later).. but before committing to do anything I would double check with them.
The weirdest outcome of this is that you can pay off your mortgage in full without paying early repayment fee if you pay in small amounts - so if you pay £1500 every day for 67 days you can pay your mortgage in full - but if you pay £100k all at once you will be charged a fee 

Based on the above - which one is better - they effectively can be the same - decreasing your monthly payments allows you to save monthly and if you save that money in account with % greater than your mortgage - then this is better, if not then shortening term. This logic also applies to not overpaying at all and saving money in full.
Factors to consider are likeliness to waste the money, likeliness of needing the money in the future, tax implications reducing saving interests.

MoneySaverPhil

Newbie_John said:

Yeah it's very not clear with Barclays

But let's say you have £100k mortgage for 20 years and pay £500 a month for it.

1. If you overpay max 10% in one go = £10k (your remaining mortgage is £90k now), your monthly payment will change to something like £450 and you still continue paying for 20 years.
2. If you overpay less than 3x monthly payments - let's say £1500, then your mortgage monthly payment remains the same - £500 a month but your term will be less than 19 years and 9 months - let's say 19 years and 6 months - because you no longer pay your mortgage interest on these £1500 for 20 years.

That's at least how I understand it (only tried step 1 above, discovered step 2 later).. but before committing to do anything I would double check with them.
The weirdest outcome of this is that you can pay off your mortgage in full without paying early repayment fee if you pay in small amounts - so if you pay £1500 every day for 67 days you can pay your mortgage in full - but if you pay £100k all at once you will be charged a fee 

Based on the above - which one is better - they effectively can be the same - decreasing your monthly payments allows you to save monthly and if you save that money in account with % greater than your mortgage - then this is better, if not then shortening term. This logic also applies to not overpaying at all and saving money in full.
Factors to consider are likeliness to waste the money, likeliness of needing the money in the future, tax implications reducing saving interests.

Hi Newbie_John,

Yeah it doesn't seem to be clear on the website.

Looking at your example in number 2 you say that you won't pay interest on the £1500 but that's where I'm assuming that part of the £1500 is going towards interest which is why they don't mind you paying as much as you want in this way? …could be wrong but it doesn't seem to make sense then that they only allow 10% in part redemption but allow as much as you want in term reduction overpayments...

I'll maybe ask the customer agents and see if they know the inner workings of how it's calculated and why term reduction overpayments are sort of limitless although I suspect they might not know.

Thanks

Phil

ElwoodBlues

Either way, overpaying will save you interest, as it's calculated daily on the remaining balance. The difference is just down to how Barclays alter your mortgage to reflect the overpayment. Shortening the term and keeping the payments the same will save (a bit) more on interest costs over the life if the mortgage. But keeping the term and reducing the monthly payments gives you more flexibility. All lenders have their own policies on how they treat overpayments. Some give you the choice, others decide for you.

Newbie_John

@MoneySaverPhil, I find it easier to understand in reversed mode. Imagine you have a savings account with £100k at 5% for 20 years, you withdraw £500 monthly. Now you decide to withdraw £10k as one off (overpayment on mortgage) and if you want to continue withdrawing monthly - you can either withdraw less (so it still lasts for 20 years) or continue withdrawing £500 but it won't last 20 years anymore.. - and this is were the difference in savings comes from - as your mortgage is shorter, you'll get charged less interest.