Mortgage overpayment issues

penners324

Dbcas said:

Told the Bank I want to keep the 'Old' payment and they say I can't and if I want to keep it I will be penalised for going over the 10% yearly overpayment amount.

Yes, as you've already paid the 10% overpayment and would then be over paying extra

BikingBud

BarelySentientAI said:

BikingBud said:

Hoenir said:

BikingBud said:

If not you simply divide the start of year loan figure by 10 and that is your allowance on top of your contractually agreed payments for the fixed term. 

I doubt that it is on top of.  Not least due to the fact that computer systems will not be programmed to cope with that level of complexity. Will simply be 10% of the opening balance at the beginning of the year. The system will know what 90% is. At any point in time will red flag if it's projected to fall beneath this level. Rather than charging ERC's by default , banks in their responsible mode , will be proactive. 

This same issue regularly pops up. Understandable but actually straightforward once the mechanics are understood. 

These fees are charged as the banks themselves incur penalties with the early repayment of the tranches of mortgages that they have sold on. 

Sorry? Complex? This isn't nursery school maths, these are multi billion pound banks with algorithms that are designed, set up and managed to maximise profit by managing many, many thousands of events by the second.

If you have an annual overpayment allowance of 10% the clue is in the phrase! Overpayment not total payment!

If you have £200k at the start of the year you can over pay £20k 

You might pay £1500 per month - £18k per year.

Year end balance = £200-£38k = £162k

and again 10% = £16.2k

And you are contracted to carry on paying £1500 per month, it is fixed after all.

So total payment = 16.2k+18k = £34.2k

Now £127800 *0.1 = £12780

And £18000 = £30780 total and so on and so forth

How is it anything other than that.

Please explain your understanding of the mechanics. 

There should no fees on you as you have complied with the terms.

That's the mistake.

You are not contracted to carry on paying £1500 per month.

You are contracted to pay whatever the required monthly payment is at the agreed interest rate and loan duration.

How bizarre!

Mine certainly does state:

• Section 2. Main Features of the loan:
• Loan Amount.......
• Duration .............
• Fixed Rate until.....2 Nov 26
• SVR (BOE +3.25%) for remainder

• Section 4. Frequency and number of payments

  Repayment frequency: Monthly Number of payments for the term of your mortgage: 120

• Section 5. Amount of each instalment
• Mortgage payments at account level
• The amounts vary according to the term and product details displayed in the Main features of the loan section £xxxx.xx until 2nd November 2026
• Then: £yyyy.yy until 2nd September 2031 (Obvs as this is SVR and not fixed this will change unless I lock in another fixed rate or pay of mortgage).
• 
  
• Section 8. Flexible features
• OverpaymentsIf 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. Please refer to the Early repayment section for details.
  

Within the app it also clearly states Contractual Monthly Payment.

With this example the fixed rate is set for 10 years remaining:



For a fix at 4%:



By overpaying and retaining the same payment £1519, you reduce the term by 14 months and save yourself an extra £3600!

Tell me again who the early repayment is to benefit?

This discussion recognises that there may be better rates and or returns available elsewhere into which to commit your funds, eg after 10 years 15k might be worth:

@3.5% ~ £21158
@4% ~ £22200
@4.5% ~ £23300

Hence saving at a good rate and seeking to pay off is very much a personal decision!

BarelySentientAI

BikingBud said:

BarelySentientAI said:

BikingBud said:

Hoenir said:

BikingBud said:

If not you simply divide the start of year loan figure by 10 and that is your allowance on top of your contractually agreed payments for the fixed term. 

I doubt that it is on top of.  Not least due to the fact that computer systems will not be programmed to cope with that level of complexity. Will simply be 10% of the opening balance at the beginning of the year. The system will know what 90% is. At any point in time will red flag if it's projected to fall beneath this level. Rather than charging ERC's by default , banks in their responsible mode , will be proactive. 

This same issue regularly pops up. Understandable but actually straightforward once the mechanics are understood. 

These fees are charged as the banks themselves incur penalties with the early repayment of the tranches of mortgages that they have sold on. 

Sorry? Complex? This isn't nursery school maths, these are multi billion pound banks with algorithms that are designed, set up and managed to maximise profit by managing many, many thousands of events by the second.

If you have an annual overpayment allowance of 10% the clue is in the phrase! Overpayment not total payment!

If you have £200k at the start of the year you can over pay £20k 

You might pay £1500 per month - £18k per year.

Year end balance = £200-£38k = £162k

and again 10% = £16.2k

And you are contracted to carry on paying £1500 per month, it is fixed after all.

So total payment = 16.2k+18k = £34.2k

Now £127800 *0.1 = £12780

And £18000 = £30780 total and so on and so forth

How is it anything other than that.

Please explain your understanding of the mechanics. 

There should no fees on you as you have complied with the terms.

That's the mistake.

You are not contracted to carry on paying £1500 per month.

You are contracted to pay whatever the required monthly payment is at the agreed interest rate and loan duration.

How bizarre!

Mine certainly does state:

• Section 2. Main Features of the loan:
• Loan Amount.......
• Duration .............
• Fixed Rate until.....2 Nov 26
• SVR (BOE +3.25%) for remainder

• Section 4. Frequency and number of payments

  Repayment frequency: Monthly Number of payments for the term of your mortgage: 120

• Section 5. Amount of each instalment
• Mortgage payments at account level
• The amounts vary according to the term and product details displayed in the Main features of the loan section £xxxx.xx until 2nd November 2026
• Then: £yyyy.yy until 2nd September 2031 (Obvs as this is SVR and not fixed this will change unless I lock in another fixed rate or pay of mortgage).
• 
  
• Section 8. Flexible features
• OverpaymentsIf 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. Please refer to the Early repayment section for details.
  

Within the app it also clearly states Contractual Monthly Payment.

Yours certainly does state - in your own post - "the amounts [of each instalment] vary according to the term and product details in the main features section".

The main features section says Loan Amount, Duration, and Fixed Rate.  It doesn't say fixed payments.

Notice how - again in your own examples - the calculator is saying "New Term".  So that is choosing to change the term of the mortgage.  Just as we have said.  Obviously changing to a new shorter loan length will save interest, but that isn't the contract you signed, it's a new one.

BikingBud

But the Term and Product Section doesn't change or it would be a change of product. To change the product I would need to settle this mortgage, paying the ERC, and start again, likely with a higher rate. Negating the benefits of overpayment!

Bear in mind the calculator is for illustrative purposes and provides information and guidance, therefore terminology such as "New Term" is not representative of contractual terms.  It does provide the following advice:

If you're on our Follow-on Rate, Standard Variable Rate or a tracker rate mortgage, you can make unlimited overpayments with no early repayment charge. If you're on a fixed rate mortgage, you can overpay up to 10% of your outstanding balance each calendar year (January to December).

I as many others have, have a fixed rate period followed by an SVR period. So leaving fixed payments at contracted value and then reduction of the term for the second SVR element is wholly acceptable. 

As I said elsewhere I will leave this now but do feel that people need to challenge their lender to ensure they are getting the best deal for themselves.

BarelySentientAI

BikingBud said:

But the Term and Product Section doesn't change or it would be a change of product. 

Exactly what I have been telling you.  Term does not change.

BikingBud said:

but do feel that people need to challenge their lender to ensure they are getting the best deal for themselves.

They should.  Some lenders will make this adjustment if asked.  Don't expect that they will though, or try to berate them with talk about the contract.