Fixed rate mortgage payment changed

foofi22

Hi

I have a fixed rate mortgage with LLoyds, which I've had for one year. 

I noticed this month that the direct debit payment taken was about £16 less than expected.  When I look at my mortgage details online the 'monthly payment' figure has also changed to the reduced figure.

I phoned them up to ask why, I was told that on the anniversary each year they re-evaluate and adjust payments. I asked if it was due to my overpayments (about £1.5k) but the answer was no.   I accepted it at the time, but now a few days later I'm thinking this is very strange!

I've had mortgages with Natwest and First Direct, both of whom didn't do this.  Is this normal?  

kingstreet

Don't forget Feb was a shorter month. That can also impact payment size.

la531983

kingstreet said:

Don't forget Feb was a shorter month. That can also impact payment size.

Its never affected mine in the years I have held a mortgage.

Nothing stopping the OP making extra payments of £16 a month themselves I suppose if it continues like that.

amanda1024

I suspect it probably is linked to the overpayments - otherwise what basis would they be using to recalculate (assuming rate, term haven’t changed)

Edi81

It is linked to the overpayments. My Halifax mortgage (same group) went down due to overpayments last year. I got a letter about it from them. 

Hoenir

foofi22 said:

I phoned them up to ask why, I was told that on the anniversary each year they re-evaluate and adjust payments. I asked if it was due to my overpayments (about £1.5k) but the answer was no.   I accepted it at the time, but now a few days later I'm thinking this is very strange!

The advisor was incorrect.  Your monthly payment will be recalculated in order to repay the remaining balance owed over the contractual term of the mortgage. Be an automated system function. No human intervention. 

With people making overpayments frequently now. Has to be checks in place to ensure that overpayment limits are not exceeded inadvertently.  Otherwise ERC's would be imposed which would negate any benefit. 

BikingBud

Hoenir said:

foofi22 said:

I phoned them up to ask why, I was told that on the anniversary each year they re-evaluate and adjust payments. I asked if it was due to my overpayments (about £1.5k) but the answer was no.   I accepted it at the time, but now a few days later I'm thinking this is very strange!

The advisor was incorrect.  Your monthly payment will be recalculated in order to repay the remaining balance owed over the contractual term of the mortgage. Be an automated system function. No human intervention. 

With people making overpayments frequently now. Has to be checks in place to ensure that overpayment limits are not exceeded inadvertently.  Otherwise ERC's would be imposed which would negate any benefit. 

@foofi22 There should be no need for recalculation and that should not lead to reduction of payment. This is nothing other than for the benefit of the lender by not applying the overpayment for your best effect, ie reduce the term and reduce the interest paid.

We should be very careful not to conflate 2 management effects, over paying within a fixed term - covered by overpayment and early resettlement clauses, which has an effective period that finishes when the fixed rate term ends, and adjusting or settling an SVR mortgage, where you can overpay to your hearts content including requesting a settlement figure to pay off the whole loan at any moment.

The calculation is quite trivial; you have an agreed monthly payment to hit the end of term, it might be fixed or SVR, or a mix of both, but this will be covered in your agreement and will cover the regular payments.

Also covered in your agreement will be an overpayment allowance for the fixed period eg 10% per calendar year. Then all you need to do is divide the start of year loan figure by 10. 

Keep paying the agreed monthly sum and pay up to the calculated figure over the spread of the year, although if you can pay earlier in the year the capital reduces sooner and the interest saving kicks in sooner. By doing this you have complied with the terms of the agreement!

If they try to reduce you regular payment complain and tell them you are quite content to remain compliant with the contracted payment schedule, this includes the overpayment capability, and that you wish to shorten the term.  

You do not agree to them unilaterally changing the conditions that impose a lower payment and therefore reduce your overpayment limit going forward.

If they wish to proceed ask them where in writing, ie where in your agreement, is the basis for the recalculation following overpayment informed.