Mortgage recalculated part way through fixed term

cmunro

So our bank has just recalculated our mortgage part way through our fixed term... the results being where we had over paid, our repayment amount for the remaining fix term is now less.. Good news you may think..  but surely not!
The recalculated monthly repayments still remain at the mortgage % we signed up with the bank, but our repayment amount has dropped.   This surely means during the remainder of our fixed term the amount we are paying off our mortgage balance now drops (repayment amount).. so any over payment we have made that we should see the benefit of at the End of the term, has been recalculated now.. and if we continue to make any overpayment they will keep adjusting the balance!

I can see where people are under paying making adjustments to the payment amount makes sense.  But if we have over paid, they are readjusting too early meaning we lose a benefit of a low interest rate and overpayment during our fixed term as the monthly repayment has dropped.

Is this legal... can they change our terms like this part way through?

Exodi

What bank please?

It's common for banks to offer you the choice of whether you want your overpayment to reduce your monthly payment or your term.

I think you've jumped the gun with questions about legality... totally legal and normal.

Many people like overpayments having an immediate impact rather than just reducing the term.

To be honest, if you have a low interest mortgage, it makes more sense to put the money into a savings account paying 5%+, with the intention of overpaying in the future.

ACG

Some banks only allow you to reduce the term if you are making overpayments of a certain amount £500+ as an example. 

But as Exodi has said, most banks allow you to specify. 

In any event, legal is probably the wrong term. I cant see it being illegal (in the sense that there wont be a law to prevent it). Some lenders do not even allow overpayments without you incurring a charge, it is likely to be legal. 

cmunro

Bank is Halifax
They didn't give us any choice!!... they have made the change to our regular payments and state it can't be reversed.

We have a yearly over repayment allowance, but by reducing our repayment early in the term it effectively levels it up if we make no  future overpayment..  to be clear they are reducing the monthly repayment amount off the balance.

So I figure by the end of the 5 year term, if we make no further overpayment we would be at the same place we should be exiting at had we made no overpayment in 5 years...
Example..
If we pay 1000 set a year for 5 years that includes a set amount repaid off the balance, plus the interest

If we over pay that in the 5 years, we have made more payments off the balance outstanding on the mortgage and in effect may be a year or so ahead after 5 years than had we not over paid.

By the bank reducing the standard monthly repayments to say 800 a month as an example, we are missing 200 of balance payment and interest combined off our mortgage payments..BEFORE.. any overpayment.  In effect clawing back the benefit of overpaying on a low interest mortgage and resetting.

ACG

Have you spoken to them? 

On a side note? Have you thought you might get a better interest rate on a savings account? It might be better to pay into one of those instead and then pay off a lump sum. 

cmunro

Yes spoken with them and they stated it was a change the bank was making and it can't be reverted.  We were given no choice.

Hence why I say is it not going against our contract terms?
We have signed for a fixed rate deal...at x amount of years in total, at X amount of % ..these will be the fixed monthly repayments for the fixed years term

Moving goalposts now!
Either way, I see it that the amount we could have paid off the balance of mortgage during the fixed rate deal term, is now less due to us over paying in the 1st few years.. 

Have given savings a thought, may do that, but this isn't about the overpayment as such, only that the bank have moved goalposts  using it in a way to capitalise in the longer term!

Exodi

cmunro said:

So I figure by the end of the 5 year term, if we make no further overpayment we would be at the same place we should be exiting at had we made no overpayment in 5 years...

I'll be honest, I'm struggling to see what you're so riled up about, there's absolutely nothing nefarious or sinister about this unless I'm misunderstanding you.

Yes to the above (and I think you are confused in some of your later points), but you would have been paying a lower monthly mortgage payment for the rest of the fixed term after the overpayment, the implication that you are somehow being penalised for the overpayment is bizarre.

If you don't want your monthly payment to go down because you wanted your balance to go down instead, there's no reason why - for example, if they decreased your monthly payment from £1000 to £800 - you couldn't just make a £200 overpayment every month so you pay the same (assuming you're not hitting the overpayment window of typically 10% of the annual opening mortgage balance), if they decrease your monthly payment further, you increase your overpayment.

I don't bank with Halifax (I'm sure that someone that does could tell you) but I wonder if you call them and ask if overpayments could be used towards reducing the term instead of the monthly payment, they'd oblige. Even if they don't you could do above and achieve the same result.

Also all of this however is entirely academic, because as I said before, if you have a very low mortgage rate, it makes no sense to be making overpayments in the first place while savings accounts are paying 5%+.

Banks can make quite questionable decisions, but I genuinely think your continued cynicism on this particular issue is sorely misplaced.

Hoenir

cmunro said:

Hence why I say is it not going against our contract terms?

Your agreed contract with the lender is to repay the mortgage by x date in the future. In the intervening period whether you fix , track or remain on the SVR. Your monthly repayments will be recalculated, both upwards and downwards to repay the debt over this fixed term. Neither party can amend these terms unilaterally. 

To change the contractual term you'll need to formally apply. The lender is duty bound to reassess affordability as part of this process. Once agreed both parties will enter a contract with a new final mortgage repayment date. . 

penners324

You're over reacting.

Just increase your overpayment by the amount the original repayment has dropped

Edi81

penners324 said:

You're over reacting.

Just increase your overpayment by the amount the original repayment has dropped

Same thing here. Took out a 10 year fix last November with Halifax. I’ve made some overpayments (around £1k). 

My repayment has been recalculated and is now £3 per month lower (it’s a big mortgage) and I’m just going to keep paying what I was originally. 

No biggie - the banks get complaints if they recalculate or don’t 

400ixl

penners324 said:

You're over reacting.

Just increase your overpayment by the amount the original repayment has dropped

Not always that simple, as the monthly rate drops, the value of the % overpayment allowed also drops. This means you can reach a point where you can't overpay as much due to breaching the limit.

If you could over pay by 10% (common limit) and you were paying £500 you could over pay £50 a month. If they drop the monthly payment to £400 then you can only overpay £40 a month and this continues to drop as they keep re-calculating the monthly payments each year.