Overpaying without reducing term - worth doing?

Darwood

Is it still worth overpaying a mortgage if the lender (HSBC in this case) won't reduce the term?

We took out a small additional mortgage a couple of years ago to do some home improvements. The initial fixed rate period has just ended and the interest rate has increased to 3.92%. As we have some savings (at about 2.5%) I made some overpayments via bank transfer back in November before the fixed rate ended but rather than decreasing the term, HSBC have reduced the monthly repayment amount. When I phoned them to ask about it they said to reduce the term I would have to start a new mortgage application. As I have just started a new 5 year fixed rate I expect there would be a hefty Early Repayment Charge to do this and probably a worse rate etc. They also said the monthly repayment amount is only recalculated if the rate changes or I contact them and ask them to recalculate it. It all sounds very suspicious to me! How can they have my additional money but not use it to reduce the debt?

In view of the above and the odd policies of HSBC regarding overpayments is it worth me making more overpayments?

varfor

Yes I think it's worth doing as long as you aren't hitting an overpayment limit. My mortgage works in a similar way. If I overpay by a lot they'll recalculate the monthly fee, if not they'll leave it the same. They're not ripping you off - you'll pay less interest because your balance will reflect the amount you've overpaid by. They should be able to show you an overpayment reserve showing how much you've overpaid by. The next time your fix comes up is the point to decide whether you want to reduce the term or not. I don't think it's worth paying early repayment fees for that alone.