Mortgage overpayment

tony3619

I'm trying to arrange an overpayment with tsb with the following options....

• Talk to us first and we'll shorten your mortgage term which will make your monthly payments higher so you repay your mortgage sooner than originally planned (repayment mortgages only); or
• Decide on a fixed amount extra to pay every month, leaving the term as it is, which will result in your future monthly payments being reduced after you've made your overpayment.

I'm assuming option 2 is your standard arrangement of making flexible overpayments where you can cancel at anytime unless you want to go through an affordability test and decrease the mortgage length? 

la531983

Yes. No need to contact them for number 2, just stick to the overpayment limit (usually 10% per annum) if applicable. 

tony3619

la531983 said:

Yes. No need to contact them for number 2, just stick to the overpayment limit (usually 10% per annum) if applicable. 

So I understand that as long as I keep overpaying on option 2 that the term would decrease naturally and would be paid off sooner, but if for example I stopped overpaying the original term would still be the same except my payments would be lower? Or would it work out the term would still be less? 

I'm not sure if they would reduce the amount of the original loan paid off each month to stretch it over the arranged term? 

tripled

Typically you can overpay your mortgage by 10% of the outstanding balance per year. With option 2, the term remains the same. Each year that passes, because you have overpaid and so owe less than originally calculated, the monthly payment is reduced to take into account the reduced balance and related interest. Also, as your mortgage balance reduces, so does the 10% amount that you can overpay.

tony3619

tripled said:

Typically you can overpay your mortgage by 10% of the outstanding balance per year. With option 2, the term remains the same. Each year that passes, because you have overpaid and so owe less than originally calculated, the monthly payment is reduced to take into account the reduced balance and related interest. Also, as your mortgage balance reduces, so does the 10% amount that you can overpay.

Thanks for this. 

So choosing this option does that mean if I want to  pay off the mortgage early I would need to continue overpaying? Otherwise it's just recalculated?

Say I overpaid for 5 years then stopped.

tripled

tony3619 said:

tripled said:

Typically you can overpay your mortgage by 10% of the outstanding balance per year. With option 2, the term remains the same. Each year that passes, because you have overpaid and so owe less than originally calculated, the monthly payment is reduced to take into account the reduced balance and related interest. Also, as your mortgage balance reduces, so does the 10% amount that you can overpay.

Thanks for this. 

So choosing this option does that mean if I want to  pay off the mortgage early I would need to continue overpaying? Otherwise it's just recalculated?

Say I overpaid for 5 years then stopped.

If you're just on the standard variable rate, you can probably overpay as much as you want, just check the T&C. Although they will reduce the minimum payment to keep the term the same, you could just keep overpaying, and then the mortgage would just finish when the balance is zero.

If you are on a fixed or discounted rate, there is usually a limit to how much you can overpay. Again, they usually recalculate the payments to keep the same term, so if you overpaid for 5 years and then stopped overpaying, you'd have smaller payments for the remaining however many years. However, at some point your fix or discounted period will end, and you can always change the term then if you want to.

tony3619

tripled said:

tony3619 said:

tripled said:

Typically you can overpay your mortgage by 10% of the outstanding balance per year. With option 2, the term remains the same. Each year that passes, because you have overpaid and so owe less than originally calculated, the monthly payment is reduced to take into account the reduced balance and related interest. Also, as your mortgage balance reduces, so does the 10% amount that you can overpay.

Thanks for this. 

So choosing this option does that mean if I want to  pay off the mortgage early I would need to continue overpaying? Otherwise it's just recalculated?

Say I overpaid for 5 years then stopped.

If you're just on the standard variable rate, you can probably overpay as much as you want, just check the T&C. Although they will reduce the minimum payment to keep the term the same, you could just keep overpaying, and then the mortgage would just finish when the balance is zero.

If you are on a fixed or discounted rate, there is usually a limit to how much you can overpay. Again, they usually recalculate the payments to keep the same term, so if you overpaid for 5 years and then stopped overpaying, you'd have smaller payments for the remaining however many years. However, at some point your fix or discounted period will end, and you can always change the term then if you want to.

Thank you! 👍