Barclays overpayment vs part redemption

Ginny_ODaire

ElwoodBlues said:

Either way, overpaying will save you interest

This is the most important part. When I took out my mortgage I made a rather powerful spreadsheet that calculates everything from how much of my monthly minimum is interest, projects the bank’s anticipated repayment trajectory, mine if I overpay as planned and mine as I am overpaying in real time. It as a result also shows me how much interest I’m saving with each overpayment. It’s a very handy tool and I’ve corroborated it against my remaining mortgage principal and it shows my calculations are correct*.

- Any overpayment you make will reduce the remaining principal.
- A reduction in remaining principal means a small reduction in interest rate (as this is calculated daily on the remaining principal).
- A reduction in remaining principal (and thus interest) means your mortgage pay-off date moves closer, regardless of how long your mortgage term is. My spreadsheet shows me how many years I’ve cut off and how much interest saved that equates to, for each repayment.
- Due to the nature of how this all works, a large component of your monthly payment at the start of your mortgage will be the interest. As you’ve then paid off a bit of the principal the next month’s will have a slightly smaller interest component as what it’s calculated on has reduced.
- As you can imagine that means maxing out your repayment early on greatly reduces your principal and thus the component of your minimum repayment that is interest. The reduction in principal also has a notable knock on effect on the proximity of your pay-off date. In short: invest in overpaying early on.

I just threw more than 3x my monthly minimum at the remaining principal as I’m getting close to the end of this repayment year and crossed the Part Redemption threshold, hence why I’m here reading up on it.

I think the best summation I can make from my reading is this:
- Overpaying is always a good idea if you can spare the cash.
- Overpaying as Part Redemption gets your minimum payment recalculated for the same term length, as your remaining principal has notably decreased. This is handy if you want to have more money in other accounts per month.
- Overpaying as “standard” keeps your monthly principal the same and pulls your pay-off day closer. 

*my calculations are almost correct. I calculate interest monthly as I enter my repayments for each month, not as per the day. Barclays calculates your daily interest using ((remaining principal / 10) x (interest rate / 365)). As such if I overpay at the start of the month there’s a notable difference to if I overpay at the end, which isn’t reflected in my spreadsheet. I’m happy to say I occasionally have to manually correct my remaining calculated principal down to match my actual principal. 

pieroabcd

hareng said:

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.

Can you please explain what you mean by that? They didn't let you redeem your mortgage even if you had already paid it in full?

pieroabcd

MoneySaverPhil said:

Newbie_John said:

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

At the telephone they have just told me that overpayments go towards the capital, that is not the interest. All overpayments calculators are based on this assumption. I can see that every time that I do an early repayment the mortgage balance (capital+interests due until today) decreases by the same amount as the overpayments, so the numbers add up.

pieroabcd

If you have multiple overpayments standing in the overpayment balance you can ask them to used them for a part redemption, as long as overall they reach the 3x threshold.

Another side effect of repaying early and doing part redemptions is that at every redemption you get a new and lower monthly installment, so it's easier to reach the new and lower 3x threshold for all following overpayments.

dn852k4

Exile28 said:

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.

When is your mortgage from? We got ours in may 2022 and I queried on live chat regarding multiple extra payments under 3x the monthly payment and I was told you can only make one a month. Any more may incur a cost penalty? I wonder if this is new or was applied to mortgages agreed after a certain date? 

Brown33

Hi all, also very interested in this, and while I understand most of this discussion and explanation, the one comment I'm struggling with is:-
"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"

Could someone explain this further?  Surely everything is ultimately covered by the 10% max per year?

BarelySentientAI

Brown33 said:

Hi all, also very interested in this, and while I understand most of this discussion and explanation, the one comment I'm struggling with is:-
"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"

Could someone explain this further?  Surely everything is ultimately covered by the 10% max per year?

The poster suggested that there was a special and unusual rule that means small overpayments do not count towards the 10%.

This is not generally the case.

Brown33

Just to add an update to this, I've been in touch with Barclays today, they confirmed the x3 monthly overpayment is only allowed once a month.  They also said something I hadn't heard about or seen discussed anywhere, from the 1st Oct this year (my mortgage started 13th June 2024) the up to 10% ERC resets, so I can pay another up to 10% off the remaining balance (I paid off 10% today).

Newbie_John

Brown33 said:

Hi all, also very interested in this, and while I understand most of this discussion and explanation, the one comment I'm struggling with is:-
"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"

Could someone explain this further?  Surely everything is ultimately covered by the 10% max per year?

I think it's worth asking Barclays directly about that - so whatever you decide to do - you have a proof from them, not us
Ask what happens if you set up a monthly overpayment of £xxx (less than 3 monthly payments) and it exceeds your 10% allowance? Especially when 10% gets smaller every year..