I've made mortgage overpayments, why won't Barclays reduce my mortgage term?

bouncyball

Hi MSE Forumers,

I would be grateful for any advice please. I've made several overpayments on my mortgage over the years and read Martin's newsletter yesterday that mentioned when you make overpayments, make sure the mortgage term reduces. My original term has not reduced at all, despite multiple overpayments. I rang Barclays to understand why this would be, they said it does not show on your online banking as having reduced, but the advisor did a calculation and my overpayments have knocked of X amount of years. 

She explained that overpayments go into a separate bucket (almost like a rainy-day fund incase I ever wanted to change them from overpayments to part-redemptions), away from my usual direct debits. 

Should I be worried that the mortgage term itself is not technically reducing and they seem to be doing some sort of manual calculation to work it out? I can't understand why don't just reduce the mortgage term, it would make me feel abit better too lol. This doesn't really matter unless it is having an effect on the interest I'm paying, I just want to ensure I'm not paying extra for them not reducing the mortgage term. Does that make sense?! I hope so!

Thank you so much

pramsay13

If you make overpayments to the mortgage you can either reduce the monthly amount, or the term of the mortgage.
I'm not sure the newsletter will have said make sure the mortgage term reduces as you can do either and it will depend on your circumstances what is best for you.
If your monthly payments are the same you will have reduced the term of the mortgage, but as has been explained to you the overpayments sit separately just in case you want to skip a normal payment and then you can use the overpayments. 

hareng

pramsay13 said:

If you make overpayments to the mortgage you can either reduce the monthly amount, or the term of the mortgage.

Was with Barclays, they would not allow me to pay in (technically an over payment) £33k from an endowment cashed in mid 2019, said have to play it out till end of time.
End of time was May 2021.
25 months on still havent received deeds, even charged interest per half day and they over charged final settlement.

hildasmuriel

I had the same issue - the term never reduced in my app even though we were always overpaying. I was told the same thing - the term in the app will always show the original end date.

Our mortgage was fully paid 7 years early - and even in the last month, with just one small payment to go, my app still showed I had 7 more years left. It's obviously a Barclays app thing.

Brie

I would write to them and ask them to confirm that your overpayments have reduced the term and what the new end date is.  The alternative would be to ask them to reduce your monthly payments to ensure you pay less interest.  Either way I'd want it all in writing and if they don't agree to doing this explain, in writing, why not.  There must be something in the T&Cs of your mortgage that explains what's supposed to happen and they just need to confirm they are complying.

Newbie_John

The idea of reduced term worked 1 year ago when interests rates were very low and we thought it would last till end of our mortgages. 
Nowadays, it's a little bit more complicated, if you're about switch your mortgage from £1000 a month to £2000 then you could say you wished to reduce the rate rather than term.. but it all comes down to the same decision you made taking your mortgage - should it be for 10 years (high monthly payments) or 20 years (lower monthly payments but much more paid overall) if you could afford both?

Some people would prefer 10 years and get over with it ASAP but some would prefer 20 and have more flexibility what to do with remaining cash.

So you really need to say what's your goal?

angel2004

In response to the OP’s original question, please don’t worry. We have made regular overpayments on our Barclays mortgage for several years.

Yes the overpayments go into a separate pot which is why it does not show as reducing the terms. You should receive an annual mortgage statement which shows the outstanding mortgage amount and the overpayment pot as 2 separate figures.

However, any overpayment will reduce the overall balance shown in the app/online, it usually takes 24hrs to update. The interest is calculated daily on the total reduced figure (original mortgage balance less overpayment pot). You can check this yourself when making an overpayment, check the total balance again in the app the next day and you will see it has reduced by the overpayment.

So whilst the term does not appear to reduce, the overpayment has reduced your total mortgage balance and therefore less interest paid and you will pay the mortgage off quicker. A mortgage calculator can then be used to calculate how quickly you will pay off your whole mortgage.

This method does sound strange but can safeguard your credit score. We have needed to make underpayments in the past and this was taken from ‘the pot’. So allows you to make underpayments as well as overpayments.

Flower1976

Not all mortgage lenders will reduce the term of a residential mortgage following receipt of an overpayment due to mortgage regulation.

in order to formally change the term of a residential mortgage the customer would need to go through a formal review with a qualified mortgage advisor to ensure the mortgage remains affordable.

But please don’t worry - interest on most mortgages is charged on a daily basis. That means that once an overpayment is made, the balance on which interest is charged is reduced immediately. 

If you continue to make your existing monthly payment, more of that payment will come off the balance each month as less interest will be being charged.

As a result, if the interest rate on the mortgage remains the same, the mortgage will get to zero earlier and will not take the contractual term.

Just understand that if there is a reason to recalculate the monthly payment, for example there is a change to the interest rate, the outstanding contractual term will be used in that calculation meaning your monthly payment will reduce. You can always increase your monthly payment if you don’t want this to happen though, depending on any overpayment allowances.

There are online mortgage calculators that you can use to give an idea of when the mortgage will be repaid. Just put in the balance outstanding, interest rate and monthly payment being made and it will indicate how long it will take to be repaid.

Sometimes, people will choose to reduce their contractual monthly payment following making an overpayment to make it more affordable going forward for example if they want to reduce their monthly outgoings. They can always make voluntary overpayments within their overpayment allowances if they feel they have the extra funds to do so.