Want to overpay but really confused

BarelySentientAI

Biggish_who said:

I found the below information on my original mortgage offer from virgin (but this was before I renewed with them after the initial 2 year rate fix).  Does anyone know if this will still apply? 

---

 During the Early Repayment Charge period you are allowed to make overpayments of up to 10.00% of the outstanding balance in each calendar year without incurring an Early Repayment Charge. In the year that your mortgage product commences, the 10.00% allowance will be calculated from the original loan balance. In subsequent years, the 10.00% allowance will be calculated from the balance as at the 31st December of each calendar year.

If, during the Early Repayment Charge period, you make overpayments of more than 10.00% of the outstanding balance in any calendar year, an Early Repayment Charge will be payable on the amount repaid that is in excess of the 10.00% allowance.

For example, if your outstanding balance was £100,000.00 at 31st December, you would be entitled to make overpayments of up to £10,000.00 in the next calendar year without incurring an Early Repayment Charge. If you overpaid by £12,000.00 in that year, you would be charged an Early Repayment Charge on the £2,000.00 that is above the annual allowance.

Please note that the annual 10.00% overpayment allowance cannot be carried forward from one calendar year to the next.

Following receipt of an overpayment, your outstanding balance and the interest charged will be recalculated with immediate effect.

 Please note that for an overpayment made by cheque, interest is adjusted two business days after we process the cheque.

If you make an overpayment by Direct Debit, or an overpayment of less than £500.00 by another payment method, your contractual monthly payment will not be recalculated.

However, if you make an overpayment of £500.00 or more, by a method other than Direct Debit, your contractual monthly payment will be recalculated. We will write to you to confirm your new contractual monthly payment, which will apply from the first of the following month.

If you wish to leave your monthly payment unchanged to further reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement. Any payment arrangement currently applied to your account will be unaffected.

To make a regular monthly overpayment to reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement.

There are no restrictions on making overpayments after the Early Repayment Charge period has ended.

It won't, but it seems likely that the same clause would have been in the next product as well - it matches what I found and what penners324 said.

Petriix

It's probably worth being aware that you can likely earn more interest by saving the potential overpayment amount than you would save in interest by making the overpayment while still in the 5 year fix. When the fix ends you can then overpay as much as you like before entering into a new fix or remortgaging. If you time a remortgage right then you could minimise your overall interest paid. 

Biggish_who

MmPetriix said:

It's probably worth being aware that you can likely earn more interest by saving the potential overpayment amount than you would save in interest by making the overpayment while still in the 5 year fix. When the fix ends you can then overpay as much as you like before entering into a new fix or remortgaging. If you time a remortgage right then you could minimise your overall interest paid. 

Thank you. 

Yes that is exactly what I have been doing so far.  The funds are in a savings about where the rate is more than twice that of my fixed mortgage rate.  So I should probably hold off making the overpayment for as long as possible. 

However I'm struggling to get my head around the best way to do it.  Whether a new fix or a remortgage will work out cheaper, and if I do remortgage will it bring down the LTV - according to my calculations I can get that below 60% so I'm thinking that will unlock a lower rate. 

This is probably why I need to talk to an advisor. 

BikingBud

Biggish_who said:

I found the below information on my original mortgage offer from virgin (but this was before I renewed with them after the initial 2 year rate fix).  Does anyone know if this will still apply? 

---

 During the Early Repayment Charge period you are allowed to make overpayments of up to 10.00% of the outstanding balance in each calendar year without incurring an Early Repayment Charge. In the year that your mortgage product commences, the 10.00% allowance will be calculated from the original loan balance. In subsequent years, the 10.00% allowance will be calculated from the balance as at the 31st December of each calendar year.

If, during the Early Repayment Charge period, you make overpayments of more than 10.00% of the outstanding balance in any calendar year, an Early Repayment Charge will be payable on the amount repaid that is in excess of the 10.00% allowance.

For example, if your outstanding balance was £100,000.00 at 31st December, you would be entitled to make overpayments of up to £10,000.00 in the next calendar year without incurring an Early Repayment Charge. If you overpaid by £12,000.00 in that year, you would be charged an Early Repayment Charge on the £2,000.00 that is above the annual allowance.

Please note that the annual 10.00% overpayment allowance cannot be carried forward from one calendar year to the next.

Following receipt of an overpayment, your outstanding balance and the interest charged will be recalculated with immediate effect.

 Please note that for an overpayment made by cheque, interest is adjusted two business days after we process the cheque.

If you make an overpayment by Direct Debit, or an overpayment of less than £500.00 by another payment method, your contractual monthly payment will not be recalculated.

However, if you make an overpayment of £500.00 or more, by a method other than Direct Debit, your contractual monthly payment will be recalculated. We will write to you to confirm your new contractual monthly payment, which will apply from the first of the following month.

If you wish to leave your monthly payment unchanged to further reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement. Any payment arrangement currently applied to your account will be unaffected.

To make a regular monthly overpayment to reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement.

There are no restrictions on making overpayments after the Early Repayment Charge period has ended.

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.

So you can ask for a payment arrangement but in effect they are restricting the overpayment benefit that you can actually gain.

Really fair that one eh?

Biggish_who

Thanks for replying. I'm not too sure what you mean though?

How do you mean they are restricting the benefit?

My understanding was I can either ask them to reduce the term, or by default it will reduce the monthly payment?

Sorry for my stupidity!


.BikingBud said:

Biggish_who said:

I found the below information on my original mortgage offer from virgin (but this was before I renewed with them after the initial 2 year rate fix).  Does anyone know if this will still apply? 

---

 During the Early Repayment Charge period you are allowed to make overpayments of up to 10.00% of the outstanding balance in each calendar year without incurring an Early Repayment Charge. In the year that your mortgage product commences, the 10.00% allowance will be calculated from the original loan balance. In subsequent years, the 10.00% allowance will be calculated from the balance as at the 31st December of each calendar year.

If, during the Early Repayment Charge period, you make overpayments of more than 10.00% of the outstanding balance in any calendar year, an Early Repayment Charge will be payable on the amount repaid that is in excess of the 10.00% allowance.

For example, if your outstanding balance was £100,000.00 at 31st December, you would be entitled to make overpayments of up to £10,000.00 in the next calendar year without incurring an Early Repayment Charge. If you overpaid by £12,000.00 in that year, you would be charged an Early Repayment Charge on the £2,000.00 that is above the annual allowance.

Please note that the annual 10.00% overpayment allowance cannot be carried forward from one calendar year to the next.

Following receipt of an overpayment, your outstanding balance and the interest charged will be recalculated with immediate effect.

 Please note that for an overpayment made by cheque, interest is adjusted two business days after we process the cheque.

If you make an overpayment by Direct Debit, or an overpayment of less than £500.00 by another payment method, your contractual monthly payment will not be recalculated.

However, if you make an overpayment of £500.00 or more, by a method other than Direct Debit, your contractual monthly payment will be recalculated. We will write to you to confirm your new contractual monthly payment, which will apply from the first of the following month.

If you wish to leave your monthly payment unchanged to further reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement. Any payment arrangement currently applied to your account will be unaffected.

To make a regular monthly overpayment to reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement.

There are no restrictions on making overpayments after the Early Repayment Charge period has ended.

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.

So you can ask for a payment arrangement but in effect they are restricting the overpayment benefit that you can actually gain.

Really fair that one eh?

Petriix

Biggish_who said:

MmPetriix said:

It's probably worth being aware that you can likely earn more interest by saving the potential overpayment amount than you would save in interest by making the overpayment while still in the 5 year fix. When the fix ends you can then overpay as much as you like before entering into a new fix or remortgaging. If you time a remortgage right then you could minimise your overall interest paid. 

Thank you. 

Yes that is exactly what I have been doing so far.  The funds are in a savings about where the rate is more than twice that of my fixed mortgage rate.  So I should probably hold off making the overpayment for as long as possible. 

However I'm struggling to get my head around the best way to do it.  Whether a new fix or a remortgage will work out cheaper, and if I do remortgage will it bring down the LTV - according to my calculations I can get that below 60% so I'm thinking that will unlock a lower rate. 

This is probably why I need to talk to an advisor. 

Ultimately, if you're overpaying after the end of your fix then there's no overpayment limit and no early repayment charges. Obviously you'll then be on the standard variable rate so you will want to take a new fix or remortgage as soon as possible after that point. You probably should talk to an advisor about how best to achieve that outcome. 

BarelySentientAI

Biggish_who said:

Thanks for replying. I'm not too sure what you mean though?

How do you mean they are restricting the benefit?

My understanding was I can either ask them to reduce the term, or by default it will reduce the monthly payment?

Sorry for my stupidity!


.BikingBud said:

Biggish_who said:

I found the below information on my original mortgage offer from virgin (but this was before I renewed with them after the initial 2 year rate fix).  Does anyone know if this will still apply? 

---

 During the Early Repayment Charge period you are allowed to make overpayments of up to 10.00% of the outstanding balance in each calendar year without incurring an Early Repayment Charge. In the year that your mortgage product commences, the 10.00% allowance will be calculated from the original loan balance. In subsequent years, the 10.00% allowance will be calculated from the balance as at the 31st December of each calendar year.

If, during the Early Repayment Charge period, you make overpayments of more than 10.00% of the outstanding balance in any calendar year, an Early Repayment Charge will be payable on the amount repaid that is in excess of the 10.00% allowance.

For example, if your outstanding balance was £100,000.00 at 31st December, you would be entitled to make overpayments of up to £10,000.00 in the next calendar year without incurring an Early Repayment Charge. If you overpaid by £12,000.00 in that year, you would be charged an Early Repayment Charge on the £2,000.00 that is above the annual allowance.

Please note that the annual 10.00% overpayment allowance cannot be carried forward from one calendar year to the next.

Following receipt of an overpayment, your outstanding balance and the interest charged will be recalculated with immediate effect.

 Please note that for an overpayment made by cheque, interest is adjusted two business days after we process the cheque.

If you make an overpayment by Direct Debit, or an overpayment of less than £500.00 by another payment method, your contractual monthly payment will not be recalculated.

However, if you make an overpayment of £500.00 or more, by a method other than Direct Debit, your contractual monthly payment will be recalculated. We will write to you to confirm your new contractual monthly payment, which will apply from the first of the following month.

If you wish to leave your monthly payment unchanged to further reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement. Any payment arrangement currently applied to your account will be unaffected.

To make a regular monthly overpayment to reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement.

There are no restrictions on making overpayments after the Early Repayment Charge period has ended.

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.

So you can ask for a payment arrangement but in effect they are restricting the overpayment benefit that you can actually gain.

Really fair that one eh?

Don't be sorry about not understanding this, because it's wrong.

Given what you've said about your savings rate, the best thing for you to do is probably:

1.  Keep the money in savings for now with the high interest rate.

2.  The day after your fixed rate deal finishes, make whatever overpayment you like - there will be no charges, fees, or restrictions because the deal is finished.

3.  The day after your overpayment has been applied to the balance, take a new fixed rate deal for the new (smaller) amount that you owe.

Maximum interest on the money you have available, at the cost of a few days on a higher mortgage rate between fixed deals.

Of course, I'm just an anonymous poster on an internet forum - a broker or advisor should be able to help you through it and explain it better.

Biggish_who

BarelySentientAI said:

Biggish_who said:

Thanks for replying. I'm not too sure what you mean though?

How do you mean they are restricting the benefit?

My understanding was I can either ask them to reduce the term, or by default it will reduce the monthly payment?

Sorry for my stupidity!


.BikingBud said:

Biggish_who said:

I found the below information on my original mortgage offer from virgin (but this was before I renewed with them after the initial 2 year rate fix).  Does anyone know if this will still apply? 

---

 During the Early Repayment Charge period you are allowed to make overpayments of up to 10.00% of the outstanding balance in each calendar year without incurring an Early Repayment Charge. In the year that your mortgage product commences, the 10.00% allowance will be calculated from the original loan balance. In subsequent years, the 10.00% allowance will be calculated from the balance as at the 31st December of each calendar year.

If, during the Early Repayment Charge period, you make overpayments of more than 10.00% of the outstanding balance in any calendar year, an Early Repayment Charge will be payable on the amount repaid that is in excess of the 10.00% allowance.

For example, if your outstanding balance was £100,000.00 at 31st December, you would be entitled to make overpayments of up to £10,000.00 in the next calendar year without incurring an Early Repayment Charge. If you overpaid by £12,000.00 in that year, you would be charged an Early Repayment Charge on the £2,000.00 that is above the annual allowance.

Please note that the annual 10.00% overpayment allowance cannot be carried forward from one calendar year to the next.

Following receipt of an overpayment, your outstanding balance and the interest charged will be recalculated with immediate effect.

 Please note that for an overpayment made by cheque, interest is adjusted two business days after we process the cheque.

If you make an overpayment by Direct Debit, or an overpayment of less than £500.00 by another payment method, your contractual monthly payment will not be recalculated.

However, if you make an overpayment of £500.00 or more, by a method other than Direct Debit, your contractual monthly payment will be recalculated. We will write to you to confirm your new contractual monthly payment, which will apply from the first of the following month.

If you wish to leave your monthly payment unchanged to further reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement. Any payment arrangement currently applied to your account will be unaffected.

To make a regular monthly overpayment to reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement.

There are no restrictions on making overpayments after the Early Repayment Charge period has ended.

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.

So you can ask for a payment arrangement but in effect they are restricting the overpayment benefit that you can actually gain.

Really fair that one eh?

Don't be sorry about not understanding this, because it's wrong.

Given what you've said about your savings rate, the best thing for you to do is probably:

1.  Keep the money in savings for now with the high interest rate.

2.  The day after your fixed rate deal finishes, make whatever overpayment you like - there will be no charges, fees, or restrictions because the deal is finished.

3.  The day after your overpayment has been applied to the balance, take a new fixed rate deal for the new (smaller) amount that you owe.

Maximum interest on the money you have available, at the cost of a few days on a higher mortgage rate between fixed deals.

Of course, I'm just an anonymous poster on an internet forum - a broker or advisor should be able to help you through it and explain it better.

Thank you for the suggestion.  It's definitely a good idea to keep the money in savings and gather the interest between now and November.  

It does seem risky letting the current deal expire without having a new fix lined up ready to go.  God knows what will have happened to interest rates by then!  But I expect a mortgage advisor would be able to look into this for me. 

BarelySentientAI

Biggish_who said:

BarelySentientAI said:

Biggish_who said:

Thanks for replying. I'm not too sure what you mean though?

How do you mean they are restricting the benefit?

My understanding was I can either ask them to reduce the term, or by default it will reduce the monthly payment?

Sorry for my stupidity!


.BikingBud said:

Biggish_who said:

I found the below information on my original mortgage offer from virgin (but this was before I renewed with them after the initial 2 year rate fix).  Does anyone know if this will still apply? 

---

 During the Early Repayment Charge period you are allowed to make overpayments of up to 10.00% of the outstanding balance in each calendar year without incurring an Early Repayment Charge. In the year that your mortgage product commences, the 10.00% allowance will be calculated from the original loan balance. In subsequent years, the 10.00% allowance will be calculated from the balance as at the 31st December of each calendar year.

If, during the Early Repayment Charge period, you make overpayments of more than 10.00% of the outstanding balance in any calendar year, an Early Repayment Charge will be payable on the amount repaid that is in excess of the 10.00% allowance.

For example, if your outstanding balance was £100,000.00 at 31st December, you would be entitled to make overpayments of up to £10,000.00 in the next calendar year without incurring an Early Repayment Charge. If you overpaid by £12,000.00 in that year, you would be charged an Early Repayment Charge on the £2,000.00 that is above the annual allowance.

Please note that the annual 10.00% overpayment allowance cannot be carried forward from one calendar year to the next.

Following receipt of an overpayment, your outstanding balance and the interest charged will be recalculated with immediate effect.

 Please note that for an overpayment made by cheque, interest is adjusted two business days after we process the cheque.

If you make an overpayment by Direct Debit, or an overpayment of less than £500.00 by another payment method, your contractual monthly payment will not be recalculated.

However, if you make an overpayment of £500.00 or more, by a method other than Direct Debit, your contractual monthly payment will be recalculated. We will write to you to confirm your new contractual monthly payment, which will apply from the first of the following month.

If you wish to leave your monthly payment unchanged to further reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement. Any payment arrangement currently applied to your account will be unaffected.

To make a regular monthly overpayment to reduce your outstanding mortgage balance, you will need to contact us to set up a payment arrangement.

There are no restrictions on making overpayments after the Early Repayment Charge period has ended.

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.

So you can ask for a payment arrangement but in effect they are restricting the overpayment benefit that you can actually gain.

Really fair that one eh?

Don't be sorry about not understanding this, because it's wrong.

Given what you've said about your savings rate, the best thing for you to do is probably:

1.  Keep the money in savings for now with the high interest rate.

2.  The day after your fixed rate deal finishes, make whatever overpayment you like - there will be no charges, fees, or restrictions because the deal is finished.

3.  The day after your overpayment has been applied to the balance, take a new fixed rate deal for the new (smaller) amount that you owe.

Maximum interest on the money you have available, at the cost of a few days on a higher mortgage rate between fixed deals.

Of course, I'm just an anonymous poster on an internet forum - a broker or advisor should be able to help you through it and explain it better.

Thank you for the suggestion.  It's definitely a good idea to keep the money in savings and gather the interest between now and November.  

It does seem risky letting the current deal expire without having a new fix lined up ready to go.  God knows what will have happened to interest rates by then!  But I expect a mortgage advisor would be able to look into this for me. 

It is a risk, but maybe not as much of one as you think.  It doesn't matter what the change in rate would be between now and then, just between when you could have signed your new contract and then.

Compare your guess at what that rate change would be (and so how much extra you would pay) with how much you would lose in interest by taking out the savings early and/or paying an ERC on overpayments.