Overpayments results in reduction of monthly payments only?

Stoddy1

Hi,
I'm hoping someone can give me some guidance...
I took out a 5-year fixed term mortgage in Sept 2022 and then maxed out my overpayment allowance for 2022, which is great.

However, I've just received my annual mortgage statement to find that my monthly payments have been recalculated and reduced as a result of the overpayments, so effectively offsetting any benefit the overpayments have made.

When I challenged this, Halifax have told me that there was a change to government policy and all bank and BOSs now have to recalculate mortgages.

Anyone else seeing this?
Is there any way to have the reduction in payments stopped?

I was offered to set up a new monthly overpayment for the difference or I could apply for a new mortgage to reduce the term, which means going through whole affordability process.

DE_612183

can you not just over-pay for the next year as well?

I presume you're trying to pay off the mortgage early?

la531983

You are overthinking this.
If your minimum payment was 500 and it's now 450 as a result of overpayments, simply pay the extra 50 yourself if its on a direct debit plus any extra amount you want to continue to pay up to the maximum allowed (usually 10% a year).

Nothing has been "offset", and either way 10% of the balance is 10% of the balance if they reset the payments or not. 

Stoddy1

DE_612183 said:

can you not just over-pay for the next year as well?

I presume you're trying to pay off the mortgage early?

Yeah, trying to pay what I can to pay it off, but I've been told that any overpayments made will still result in the monthly payments being recalculated the following year.

la531983

Stoddy1 said:

DE_612183 said:

can you not just over-pay for the next year as well?

I presume you're trying to pay off the mortgage early?

Yeah, trying to pay what I can to pay it off, but I've been told that any overpayments made will still result in the monthly payments being recalculated the following year.

Just do as I suggested then, and then when the fixed rate is done and you are sorting a new rate out the mortgage length can be recalculated at that time if you like. 

Stoddy1

la531983 said:

You are overthinking this.
If your minimum payment was 500 and it's now 450 as a result of overpayments, simply pay the extra 50 yourself if its on a direct debit plus any extra amount you want to continue to pay up to the maximum allowed (usually 10% a year).

Nothing has been "offset", and either way 10% of the balance is 10% of the balance if they reset the payments or not. 

I think you might be right... I've thought about nothing else since I got the statement. 🤦‍♀️🤦‍♀️

It just feels wrong that the difference between the original payment and the new one will now eat into my overpayment allowance. 
I signed up for a fixed rate because my monthly payments would be the same every month, kind of feels that the goalposts are being moved...

la531983

Stoddy1 said:

la531983 said:

You are overthinking this.
If your minimum payment was 500 and it's now 450 as a result of overpayments, simply pay the extra 50 yourself if its on a direct debit plus any extra amount you want to continue to pay up to the maximum allowed (usually 10% a year).

Nothing has been "offset", and either way 10% of the balance is 10% of the balance if they reset the payments or not. 

I think you might be right... I've thought about nothing else since I got the statement. 🤦‍♀️🤦‍♀️

It just feels wrong that the difference between the original payment and the new one will now eat into my overpayment allowance. 
I signed up for a fixed rate because my monthly payments would be the same every month, kind of feels that the goalposts are being moved...

Your overpayment allowance would be exactly the same anyway, it's based on the balance remaining at a given point and not how much your minimum payment is or the term remaining. 

No goalposts are being moved here.

Bear in mind 10% of your balance now will be less than 10% was a year ago and so on. 

Stoddy1

la531983 said:

Stoddy1 said:

DE_612183 said:

can you not just over-pay for the next year as well?

I presume you're trying to pay off the mortgage early?

Yeah, trying to pay what I can to pay it off, but I've been told that any overpayments made will still result in the monthly payments being recalculated the following year.

Just do as I suggested then, and then when the fixed rate is done and you are sorting a new rate out the mortgage length can be recalculated at that time if you like. 

Thanks for your help.

Stoddy1

la531983 said:

Stoddy1 said:

la531983 said:

You are overthinking this.
If your minimum payment was 500 and it's now 450 as a result of overpayments, simply pay the extra 50 yourself if its on a direct debit plus any extra amount you want to continue to pay up to the maximum allowed (usually 10% a year).

Nothing has been "offset", and either way 10% of the balance is 10% of the balance if they reset the payments or not. 

I think you might be right... I've thought about nothing else since I got the statement. 🤦‍♀️🤦‍♀️

It just feels wrong that the difference between the original payment and the new one will now eat into my overpayment allowance. 
I signed up for a fixed rate because my monthly payments would be the same every month, kind of feels that the goalposts are being moved...

Your overpayment allowance would be exactly the same anyway, it's based on the balance remaining at a given point and not how much your minimum payment is or the term remaining. 

No goalposts are being moved here.

Bear in mind 10% of your balance now will be less than 10% was a year ago and so on. 

Thanks for your help.  Think it's helped give me some clarity.

ader42

It is the only practial way to do it. The only issue I see is that the lenders approach actually reduces the amount that can be overpaid, especially if you are an aggressive overpayer.

e.g. If one wants to set their normal mortgage at £2k a month on mortgage debt of £250k they can typically overpay by upto 10% so £25k.
Let’s say they overpay £24k so, then the next year they owe £239k - £24k = £215k and the new mortgage payments will be £1800 a month and they can only overpay by upto £21.5k but they might want to pay £2k a month as a matter of course (as that is what they originally signed up to do) and overpay a further £2k a month too - the second year they will not be able to.

It feels like the banks would be happy about the recalculating as it will result in many people paying less and thereby prolonging the mortgage making the banks more money but basically when you take out a fix you fix the % rate not the monthly payment.