Can any explain this?

tony3619

I'm looking to start overpaying monthly. 

My banks website says..

"Please note that regular overpayments do not reduce your mortgage term. For regular overpayments, your monthly payment will not change until it is reviewed in the normal course of events - for example, on a rate change or product switch"

I thought with regular overpayments you can request to reduce the term? 

The bank is TSB 

MFWannabe

You can request to reduce the term, but this would mean a review not just  a product transfer, to make sure you can pay the new fixed amount 

the term will naturally reduce anyway by making over payments 

tony3619

Going by that wording I kind of thought it sounds like if you pay off some through overpayments they will spread the remainder over the same term? 

Can I not ask to overpay by X amount and ask them to reduce the term? I dont see why I would require a review to go this? 

MFWannabe

tony3619 said:

Going by that wording I kind of thought it sounds like if you pay off some through overpayments they will spread the remainder over the same term? 

Can I not ask to overpay by X amount and ask them to reduce the term? I dont see why I would require a review to go this? 

Because it changes your “fixed” payment amount 

It really doesn’t make a difference as I said previously if you overpay your term naturally decreases anyway 🤷‍♀️ and if for some reason you needed to stop making overpayments you could 

tony3619

MFWannabe said:

tony3619 said:

Going by that wording I kind of thought it sounds like if you pay off some through overpayments they will spread the remainder over the same term? 

Can I not ask to overpay by X amount and ask them to reduce the term? I dont see why I would require a review to go this? 

Because it changes your “fixed” payment amount 

It really doesn’t make a difference as I said previously if you overpay your term naturally decreases anyway 🤷‍♀️ and if for some reason you needed to stop making overpayments you could 

Sorry if I'm being thick! But does that mean the term would decrease at the end of the fixed rate term?

Linton

tony3619 said:

Going by that wording I kind of thought it sounds like if you pay off some through overpayments they will spread the remainder over the same term? 

Can I not ask to overpay by X amount and ask them to reduce the term? I dont see why I would require a review to go this? 

I dont see your problem.  When I had a mortgage I paid as much as I wanted to provided it was no lower than the required payment and the mortgage ended when the mortgage was completely paid off.  The stated term was irrelevent.

Are there penalties for doing this with your mortgage?

Why do you want them to reduce the term?

MFWannabe

tony3619 said:

MFWannabe said:

tony3619 said:

Going by that wording I kind of thought it sounds like if you pay off some through overpayments they will spread the remainder over the same term? 

Can I not ask to overpay by X amount and ask them to reduce the term? I dont see why I would require a review to go this? 

Because it changes your “fixed” payment amount 

It really doesn’t make a difference as I said previously if you overpay your term naturally decreases anyway 🤷‍♀️ and if for some reason you needed to stop making overpayments you could 

Sorry if I'm being thick! But does that mean the term would decrease at the end of the fixed rate term?

The overall term naturally decreases, so say you have a 15 year mortgage and regularly overpay, depending on the overpayment the mortgage will decrease by x number of months/ years 

Have a play on the overpayment calculator 
https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

This will show you the reduction in term 

ElwoodBlues

When you make an overpayment it affects your mortgage in one of two ways: either your regular monthly payment is reduced to preserve the original term, or the payment stays the same and the term is shortened. However, the 3rd way is for neither to occur immediately, which gives you flexibility in the future to go with either of the first two options (the lender will probably want to reassess you for affordability if you ask them to reduce the term though, but if your circumstances and income are the same you should pass that).

Some lenders don't bother to recalculate after small overpayments have been made, some give you the choice. I know for Natwest they don't recalculate on overpayments below £1000, but above that and they recalculate (reduce) your regular payment amount to preserve the term.

The monthly payment amount will still get recalculated at some point in the future - most likely when your current fix expires/rate changes. 

You can use this to your advantage if you are wanting to overpay up to your annual overpayment allowance - because your overpayment allowance is above whatever your regular payment amount is, and if that's been left artificially high because it hasn't been recalculated downwards then you're effectively overpaying above what you'd otherwise be allowed to.

I'm coming towards the end of a 5 year fix and I've managed to make substantial overpayment in small regular amounts without triggering a recalculation in the monthly payment. That's allowing me to overpay by about an extra £100 a month, and I've only got a small mortgage so that's quite a chunk. My standard monthly would have reduced dramatically at the end of this fix, except that the rate increases have gobbled it all up again!

Flower1976

Under mortgage regulation they can not reduce the term of your mortgage without you going through a review with a mortgage arranger. It doesn’t really make any difference though.

if you make overpayments to a repayment mortgage the balance will reduce.

If the interest rate remains the same it will not take the full term of the mortgage to get to zero. The balance will reduce to zero quicker. But the official term will remain the same on your mortgage.

Anything you pay on top of the normal interest comes off the balance. On daily interest accounts that will mean that less of your normal payment will go towards interest and more will reduce the balance too.

Flower1976

You can get an idea of when your balance will reduce to zero by using an online mortgage calculator.

tony3619

So let me see if I'm understanding this correctly

If I overpay i will obviously reduce the amount I owe, but I cant just ask the bank to use it to reduce my mortgage term without them doing a affordability review? 

So my question would be if I'm overpaying and it's not showing as a reduced term will they just spread the outstanding balance automatically over the the same term? Or would I just end up paying it off X amount of years earlier and my account would still show X years