Mortgage overpayment or savings 10yr fixed

phillw

EssexHebridean said:

The usual with mortgage overpayments is to ask them to apply the overpayment against the capital, as this impacts the amount you are then paying interest on. 

It will always affect the capital & the amount you pay interest on.

What you can choose is to either

1. keep the monthly repayments the same, in which case the term will be reduced (nationwide would recalculate the term on every repayment of £500 or above)

or

2. keep the term the same and recalculate the monthly repayments.

option 1 will mean you pay less interest overall, as you are reducing the amount you are repaying.

However lenders will often allow you to borrow the overpayments back (though they may credit check you) or sometimes let you have a payment holiday if your income drops. However I would only do this in an emergency.

Bella79

Hi All

Thank you for all your replies.

The 11k overpayment at the moment is sat there I believe, it does not make any difference to the current payment, although it will  eventually because we will clear the mortgage earlier?

We have applied for a first direct joint account to give us access to the 7% saver, and think we will start splitting the overpayment, so feed the saver with £300 and the rest to the mortgage. 

I think the max you can put in it £300 per month anyway (unless we can open one each?). Does this seem like an okay plan? 

Do I live the 11k with Barclays? or should I withdraw it? they said I can withdraw once. Or do I ask them to apply it officially to the term?

P1Fanatic

Tbh I am still unclear. When I overpay on our mortgage (HSBC) it goes straight off the balance, thus reducing the interest paid for the next month. It does not impact the monthly payment as the overall mortgage term is reducing (which is what most people want to achieve by overpaying and presumably you are the same). I've never seen a holding balance of total overpayments as you mention. Did you overpay £11k in a single lump sum or multiple over a period of time?

TiVo_Lad

Barclays modus operandi is explained here:

https://www.barclays.co.uk/mortgages/existing-customer-centre/overpayment-underpayment-explained/

Smaller over payments reduce the term, bigger over payments reduce the monthly payment.

It's odd that they operate this "separate account" approach, but the OPs over payments are reducing the term, which is what most people would expect (and want) i.e. an over payment pays off the mortgage faster at lower overall cost.

Bella79

I am confused re the overpayments too!

When I took the new deal in Oct 22 payments were £504, now the new deal has started they payment is £556! they said because the £504 was based on bal inc overpayment and the £556 is the actual bal not inc overpayment .... yup confused 

Qyburn

TiVo_Lad said:

Barclays modus operandi is explained here:

https://www.barclays.co.uk/mortgages/existing-customer-centre/overpayment-underpayment-explained/

Smaller over payments reduce the term, bigger over payments reduce the monthly payment.

It's odd that they operate this "separate account" approach, but the OPs over payments are reducing the term, which is what most people would expect (and want) i.e. an over payment pays off the mortgage faster at lower overall cost.

We were offered an Abbey National product that worked like that, effectively almost like a linked savings account.  Money in that separate account reduced the interest due each month, the effect being that each monthly payment paid off more principle and therefore shortened the term. Or you could merge the cash into the mortgage reducing the balance and the monthly payments.

grumbler

an offset mortgage ?

george4064

Qyburn said:

TiVo_Lad said:

Barclays modus operandi is explained here:

https://www.barclays.co.uk/mortgages/existing-customer-centre/overpayment-underpayment-explained/

Smaller over payments reduce the term, bigger over payments reduce the monthly payment.

It's odd that they operate this "separate account" approach, but the OPs over payments are reducing the term, which is what most people would expect (and want) i.e. an over payment pays off the mortgage faster at lower overall cost.

We were offered an Abbey National product that worked like that, effectively almost like a linked savings account.  Money in that separate account reduced the interest due each month, the effect being that each monthly payment paid off more principle and therefore shortened the term. Or you could merge the cash into the mortgage reducing the balance and the monthly payments.

What you've just described is an Offset Mortgage.

Albermarle

We have applied for a first direct joint account to give us access to the 7% saver, and think we will start splitting the overpayment, so feed the saver with £300 and the rest to the mortgage. 
I think the max you can put in it £300 per month anyway (unless we can open one each?). Does this seem like an okay plan? 

If you have a joint current account with First Direct, you can both open/start a regular saver separately. Two payments of £300 will come out of your current account each month.

Presume you know that there is also cashback for switching your current account to First Direct ( as opposed to just opening a current account with them)

Details and terms and conditions here.

Best bank accounts: Up to £175 to switch or up to 7% interest - MSE (moneysavingexpert.com)

GrubbyGirl_2

Just my view on what I would do.  As the interest rate is higher in savings than your fixed rate I'd put the money in a savings account with a view to being able to pay off the capital when the 10 year fix is finished.  If interest rates come down to a point where your mortgage is more expensive then swap them over but you'll at least have a pool of savings for emergencies