Halifax Not Reducing Term With Overpayment

Hoenir

jrawle said:

Hoenir said:

The inherent danger is that by making the maximum overpayment. You exceed the annual 10% allowance. As a consequence incur penalty charges. Unless the standard monthly payment is adjusted. That's  mathematical fact as there's less interest charged as the capital balance reduces. Meaning more capital gets repaid. 

I find it hard to believe that's how it works. 

Basic maths.  If you overpay by the maximum amount. Then for the remainder of that calendar year you maintain the existing of repayments. You can only exceed the 10% or whatever granted. The lenders computer system will calculate purely on numbers nothing else. 

Flower1976

I work for a bank (not Halifax) and if you continue to pay your contractual monthly payment after you have made your 10% payment that would not then count as making a further overpayment.

you would just be making your contractual payment - less of it would be paying interest and more of it will be paying capital which means the balance will reduce quicker.

ElwoodBlues

Don't worry about it too much, your current fix end when you want the mortgage to end anyway. Then you can deal with the remainder at that point without any penalty. 

Just keep overpaying and try not to exceed the 10% annual allowance, or reduce the mortgage balance to zero during the 5yr term (not sure what actually happens in that situation?)

Put anything over that into savings to clear a lump sum when the 5 years are up.

The lender reducing the regular monthly payment is just trying to preserve the term, to alter the term would require a change of contract, credit/affordability checks etc. And likely an ERC if you do that within a fixed term.

Sg28

Flower1976 said:

I work for a bank (not Halifax) and if you continue to pay your contractual monthly payment after you have made your 10% payment that would not then count as making a further overpayment.

you would just be making your contractual payment - less of it would be paying interest and more of it will be paying capital which means the balance will reduce quicker.

However the following year your repayments will be re calculated lower giving you a lower contractual payment. If you keep your payments the same you are making the contractual payment plus a regular monthly overpayment. (The difference between the old contractual amount and the new lower amount)

Those 12 monthly overpayments will make up part of your 10% allowance.

 If you pay the full 10% lump sum also then you will incur erc.

jrawle

Sg28 said:

However the following year your repayments will be re calculated lower giving you a lower contractual payment. If you keep your payments the same you are making the contractual payment plus a regular monthly overpayment. (The difference between the old contractual amount and the new lower amount)

Those 12 monthly overpayments will make up part of your 10% allowance.

 If you pay the full 10% lump sum also then you will incur erc.

This is true, although the majority of people presumably pay by direct debit, and this would automatically be adjusted to the new contractural payment. Only people who pay by standing order would need to be careful to adjust their payment.

As for the current calendar year, I am still in agreement with @Flower1976 above that the standard monthly payment won't be considered an overpayment, even if the 10% overpayment allowance has been used.

Janie1975

Sg28 said:

However the following year your repayments will be re calculated lower giving you a lower contractual payment. If you keep your payments the same you are making the contractual payment plus a regular monthly overpayment. (The difference between the old contractual amount and the new lower amount)

Those 12 monthly overpayments will make up part of your 10% allowance.

 If you pay the full 10% lump sum also then you will incur erc.

Is this true for all banks though? I'm with TSB. I've had a 5 year fixed since July 2022 and have regular fixed payments. I overpaid by 10% in 2022 and 2023 and my regular fixed payments haven't changed at all. I also haven't incurred any fees for paying over the 10%. I'm confused now! 

jrawle

Janie1975 said:

Is this true for all banks though? I'm with TSB. I've had a 5 year fixed since July 2022 and have regular fixed payments. I overpaid by 10% in 2022 and 2023 and my regular fixed payments haven't changed at all. I also haven't incurred any fees for paying over the 10%. I'm confused now! 

It will vary from bank to bank. For example, with Nationwide, they only recalculate your monthly payment if you make an individual overpayment of £500 or more. They also recalculate it if the interest rate changes, which it won't during a fixed deal. As long as you pay the correct monthly payment as required by your bank, you will be fine.

BikingBud

Hoenir said:

jrawle said:

Hoenir said:

The inherent danger is that by making the maximum overpayment. You exceed the annual 10% allowance. As a consequence incur penalty charges. Unless the standard monthly payment is adjusted. That's  mathematical fact as there's less interest charged as the capital balance reduces. Meaning more capital gets repaid. 

I find it hard to believe that's how it works. 

Basic maths.  If you overpay by the maximum amount. Then for the remainder of that calendar year you maintain the existing of repayments. You can only exceed the 10% or whatever granted. The lenders computer system will calculate purely on numbers nothing else. 

It's not the basic maths, if you overpay to the maximum amount, 10%, that is it! Bear in mind the lender's system will do what the lender programmed it to do!

If you are allowed to overpay 10% without penalty per year then with a starting balance of 200K you can overpay £20k and your monthly rate, say £833.33.  The next year according to the maths you are able to overpay £17k as well as your monthly £833.33 and so on and so forth. You will not exceed the 10% annual overpayment unless the lender reduces your monthly payment, possibly unilaterally, and you leave it at £833.33 and they then deem this to be overpayment.

Santander works like this:

Overpayments

If there is a product related early repayment charge, you can make additional capital repayments of up to 10% of the loan balance in each calendar year.

Overpayments in excess of 10% may attract an early repayment charge, on the excess amount.

And see summary sheet, after overpayment to confirm reduced term as well as interest saved:



and it would seem Halifax used to.

So it might be how the lender applies overpayments and then reduces the monthly payment to try and protect their income stream but I would argue this is a penalty.

You would need to be familiar with your own mortgage Ts&Cs to determine for yourself.

snowqueen555

I spoke to Halifax who told me after a year I would need to let them know via a meeting what I wanted to do with the overpayments, but reducing the mortgage amount is that they usually do, you must request it reduces the term. It sounds a bit rubbish tbh because they keep your money for up to a year and it isn't doing anything.

Halifax are apita to be honest, way too much involvement with the advisors who insist on too many meetings sales pitches etc.

fozzie55

snowqueen555 said:

I spoke to Halifax who told me after a year I would need to let them know via a meeting what I wanted to do with the overpayments, but reducing the mortgage amount is that they usually do, you must request it reduces the term. It sounds a bit rubbish tbh because they keep your money for up to a year and it isn't doing anything.

Halifax are apita to be honest, way too much involvement with the advisors who insist on too many meetings sales pitches etc.

Sounds about right re: Halifax. We couldn't reiterate enough at the application stage that we are only looking to reduce the term with overpayments, to pay off the mortgage before retirement. We were never told about any meeting. We paid the 10% overpayment in the first 2 years, our monthly payments didn't change so we presumed we were reducing the term.