Does reducing the term breach overpayment rules?

PRDMKT

I am looking at calling in my mortgage on a reduced term, this difference in payments would greatly exceed my overpayment allowance, would this mean that I would be liable for the early-repayment charge as if I exceeded overpayment allowance? 

The_Unready

What do you mean by 'calling in' your mortgage? Isn't that something the lender would normally do?

dunstonh

I am looking at calling in my mortgage on a reduced term

You cannot call in a mortgage.   That is American slang for when a lender repossesses the property.   Its not a term used in the UK.

would this mean that I would be liable for the early-repayment charge as if I exceeded overpayment allowance? 

Yes.  

PRDMKT

Apologies- the mortgage is not "being called in" I am not an industry professional and therefore I am not clued up on the lingo. I was simply referring to reducing the term. So am I right to understand that if I reduce the term by an amount that would exceed the overpayment limit I will liable to pay the overpayment fee?

I didn't think this would be the case, so will probably still contact my lender to confirm. but I guess it is always best to double check.

dunstonh

So am I right to understand that if I reduce the term by an amount that would exceed the overpayment limit I will liable to pay the overpayment fee?

With most lenders, If you formally reduce the term, it requires a new underwriting decision and potentially a new deal.  So, the ERC would apply.

Is there a particular reason you feel the need to formally reduce the term? 
If the overpayments are maintaining the monthly payments at the same level then you are reducing the term by default without the need to adjust product terms.

CSI_Yorkshire

PRDMKT said:

I am looking at calling in my mortgage on a reduced term, this difference in payments would greatly exceed my overpayment allowance, would this mean that I would be liable for the early-repayment charge as if I exceeded overpayment allowance? 

"I am looking at reducing the term of my mortgage while I am still in a fixed deal.  Would this be liable for ERC?"

Yes, because as dunstonh points out, this is effectively paying off the entire mortgage and replacing it with a new shorter one.

You might even discover that you would have to pay ERC on the full balance, not on the bit that you think you are overpaying.

nitrokev

I've been reducing my term every month for the past 6 month, not heard anything from Nationwide to say that I shouldn't be doing it. And when I asked if there would be an ERC they said no

dunstonh

nitrokev said:

I've been reducing my term every month for the past 6 month, not heard anything from Nationwide to say that I shouldn't be doing it. And when I asked if there would be an ERC they said no

Are you saying each month of the last 6 months you have been contacting Nationwide to ask them to reduce your term?   That is a highly unusual thing to do.

Or are you saying you make overpayments which maintain the monthly payment but reduce the term? 
I suspect this is what you mean but that is not what the OP is asking.  What you are doing automatically reduces the term but informally.   i.e. you are not asking them to reduce the term to xx years and reset the monthly payment to match that.         

PRDMKT

dunstonh said:

So am I right to understand that if I reduce the term by an amount that would exceed the overpayment limit I will liable to pay the overpayment fee?

With most lenders, If you formally reduce the term, it requires a new underwriting decision and potentially a new deal.  So, the ERC would apply.

Is there a particular reason you feel the need to formally reduce the term? 
If the overpayments are maintaining the monthly payments at the same level then you are reducing the term by default without the need to adjust product terms.

 I want to overpay more than the 10% lender permit

PRDMKT

On the contrary, I have spoken with my lender who have advised that this can be done without the need for underwriting (within reason) and is subject to no early repayment charge

dunstonh

PRDMKT said:

 I want to overpay more than the 10% lender permit

That is actually different to what you have indicated in your earlier posts.    That would not trigger an ERC on the full amount as you are not asking for a reduction in the mortgage term formally.  

As said higher up, overpayments that do not reduce your monthly payment reduce your mortgage term passively. i.e. it happens by default without the need for you to formalise anything.     That is not the same as asking your lender to formally reduce your mortgage term (which would increase your monthly payments).

On the contrary, I have spoken with my lender who have advised that this can be done without the need for underwriting (within reason) and is subject to no early repayment charge

That bit doesn't sound right.    If you are exceeding the 10% allowance and are on a fixed rate deal then you should be subject to the ERC on the excess over the 10%.