Overpayments and bank working against us

RJW0007

Although I am currently in 4 year of a fixed rate, the bank started what they call a yearly review of their mortgages under the banner of checking that you will still pay off your mortgage at the end of the full term.

I am however an advocate of overpaying, and have been doing so on this mortgage for the last 3 years which is obviously limited by the fixed term period. what they have been doing under the review is however lowering my monthly payment on review date so that it reflects the end date of in my case a 17 year mortgage.

This seems to be working against the benefit of overpayment, epically when in the fixed term time period as normally you could just raise the monthly payment again.

it seems that they are hiding under the banner  of making sure you will payoff you mortgage with the period maybe because have paused for year or something in order to attack and neutralise overpayments, mine is a Halifax mortgage , through the Bank of Scotland. are all banks doing this?

Clive_Woody

With my mortgage with nationwide I was able to choose whether I wanted overpayments to reduce the term of the mortgage or for them to be used to reduce monthly payments and keep the term/duration of the mortgage the same. I opted for reducing the duration of the mortgage so we were able to pay it off far sooner (and within the 10yr fix we had opted for).

BarelySentientAI

Your mortgage term is contractual and is restricted by affordability checks.

What you describe is pretty standard practice.  It's not hiding behind anything, it's not nefarious, and it will have been described in the documentation for your mortgage product.

Tell them you want a shorter term and you can have it, subject to the appropriate calculations and fees.

Even still, you have the benefit of a smaller capital balance already and therefore less interest.

Brie

Some seem to assume you want lower monthly payments and others are quite happy for you to shorten the term.  It will depend on the bank and their T&Cs.

The alternative to them shortening the term is for you to overpay into a savings account and then use that as part of your overpayment at some point.

It does work in your favour either way as less interest is being charged due to there being a smaller principle to charge against so you do win in the end.  

Hoenir

Continue to overpay , within the prescribed limits, and the mortgage will ultimately be cleared quicker.  

Jemma01

just ask them to make the period shorter, unlikely they'll say no. The default seems to be to reduce the monthly payment, which makes sense since you've been overpaying, it needs to go somewhere, either reduced monthly fee, or reduced term time.

Newbie_John

You have three ways to shorten your mortgage:
a) overpay and ask bank to keep reducing term
b) do not overpay at all, save instead and in the final years - just pay your mortgage in full
c) overpay and reduce monthly payments

They all are quite similar and there are better times to use each of them.

a) option is better when mortgage rate is > savings rate
b) option is better when savings rate is > mortgage rate
c) a bit of hybrid really, it's overpaying but a bit like saving also - you get your interest rates paid monthly in lower monthly installment (£900 instead of £1000 before, so £100 is your interest saved).

Hoenir

Jemma01 said:

just ask them to make the period shorter, unlikely they'll say no.

Apply formally to shorten the term to x years. The lender is now obliged to performance affordability checks before agreeing to the contractual change. 

BikingBud

Hoenir said:

Jemma01 said:

just ask them to make the period shorter, unlikely they'll say no.

Apply formally to shorten the term to x years. The lender is now obliged to performance affordability checks before agreeing to the contractual change. 

If you are on a fixed rate mortgage this will have an effective period usually protected by the ERC and may have conditions or limits for overpayment eg 10% of the outstanding balance annually. So for a 5 year fix you will get five bites of the cherry to pay off 10% of the balance. You are not changing the fixed rate period.

There is no need for any affordability check as the payments the same as the period are fixed! These terms were agreed at the start of the mortgage period as part of the offer and accepted when your conveyancer exchanged your contracts.

If you go from fixed to Standard Variable you can request a settlement figure at any time, no ERCs payable and is in no way covered by any affordability assessment.  

This end of fixed rate also usually also enables a window of opportunity between fixed rate deals, with the same provider, where the lump sum can be reduced without limit. If going to a different provider there will be no limit but new products will likely require full affordability for the product.  

Staying with the same provider, 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 over pay to the contractually agreed limit, retain the contractually agreed payment for the agreed fixed term, and upon completion of the fixed term reduce the term and via this reduce the total interest paid, significantly.

BarelySentientAI

BikingBud said:

Hoenir said:

Jemma01 said:

just ask them to make the period shorter, unlikely they'll say no.

Apply formally to shorten the term to x years. The lender is now obliged to performance affordability checks before agreeing to the contractual change. 

If you are on a fixed rate mortgage this will have an effective period usually protected by the ERC and may have conditions or limits for overpayment eg 10% of the outstanding balance annually. So for a 5 year fix you will get five bites of the cherry to pay off 10% of the balance. You are not changing the fixed rate period.

There is no need for any affordability check as the payments the same as the period are fixed! These terms were agreed at the start of the mortgage period as part of the offer and accepted when your conveyancer exchanged your contracts.

If you go from fixed to Standard Variable you can request a settlement figure at any time, no ERCs payable and is in no way covered by any affordability assessment.  

This end of fixed rate also usually also enables a window of opportunity between fixed rate deals, with the same provider, where the lump sum can be reduced without limit. If going to a different provider there will be no limit but new products will likely require full affordability for the product.  

Staying with the same provider, 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 over pay to the contractually agreed limit, retain the contractually agreed payment for the agreed fixed term, and upon completion of the fixed term reduce the term and via this reduce the total interest paid, significantly.

Sorry, but that blanket statement is just wrong.

Fundamental misunderstanding of what a fixed rate period is, despite bolding and underlining the name.

The rate is fixed, and the term is fixed, but the payment is not.

You will often discover, if you read the "terms that were agreed at the start of the mortgage period as part of the offer" they state that the monthly payment will be recalculated if overpayments are made (or overpayments above a certain value at least).

Staying with the same provider at the end of a fixed rate deal but changing the mortgage length to match a desired monthly payment often does require affordability checks.

Paying a lump sum to reduce capital balance (and hence interest) but keeping the same mortgage length does not require affordability checks, but would result in smaller monthly payments.

You mistake what is contractually agreed, and your advice is therefore misleading.

BikingBud

Seems over a number of threads we have a disagreement, I know what my mortgage says and how it is playing out, it is not how you describe.

It would appear that a number of posters are having terms different to mine imposed by their lenders. That puts them in a less advantageous position, by reducing the monthly payment the capital owed stays higher for longer and the borrower is charged more interest than they might have been had the payments remained the same.

And you recognise this by using the term "often" but clearly it is down to the individual to understand their own agreement and be prepared to challenge why the lender is unilaterally reducing the payment even though the overpayment was within the directed overpayment limit and the risk/exposure is exactly the same as within the agreement ie there is no change in affordability to be reviewed.

This approach is only for the benefit of the lender at the expense of the borrower. 

I will back out of these discussions now.