Overpaying a Lloyds mortgage

Trooper999

Hi all,

I’m sure this is a stupid question but have to ask anyway.
so, I’ve been talking with a mortgage adviser from Lloyds today. 

They have informed me that if I make any overpayments to my new mortgage that the term will not reduce and you can’t select it to reduce it (like you can with Nationwide).

The question is, if I make overpayments to this account will the term ultimately come down, even if you don’t see it?

my guess is that it would have too as if you’re paying more towards it then you will pay it off sooner anyway, it’s just that you can’t physically see the reduction in the term….

BarelySentientAI

Trooper999 said:

Hi all,

I’m sure this is a stupid question but have to ask anyway.
so, I’ve been talking with a mortgage adviser from Lloyds today. 

They have informed me that if I make any overpayments to my new mortgage that the term will not reduce and you can’t select it to reduce it (like you can with Nationwide).

The question is, if I make overpayments to this account will the term ultimately come down, even if you don’t see it?

my guess is that it would have too as if you’re paying more towards it then you will pay it off sooner anyway, it’s just that you can’t physically see the reduction in the term….

If you make overpayments and keep the monthly payment the same then the term will come down.

Otherwise, the term will remain the same and you will have lower monthly payments, but you will still pay less interest overall.

400ixl

You can't keep the monthly payment and the term the same as they are mutually exclusive.

You will likely find they reduce the monthly payment on a yearly basis to keep the term the same. You can continue to over pay, but if that has a max % then each year both the base payment and the allowable overpayment will reduce and the term will stay the same.

Depending on the savings rates you may be better off putting the overpayment into that and paying off a chunk of the mortgage at the next renewal.

If you want to have amortgage that overpayments shorted the term then best get one that works that way.

Hoenir

The mortgage term is contractual so is fixed. Can only be altered by making an official application. Now that lenders have a duty of care towards borrowers. They reassess affordability before agreeing to shorten the term. 

Best thing to do is keep overpaying by as as much as you are able. You never know when having the flexbility to have a lower monthly outgoing may come in handy. Also at some point in time interest rates may again rise further. 

BikingBud

Some lenders are very happy to have their cake and eat it! There's is no legitimate reason to do another affordability check, you did that when you took out the product. 

Only the fixed part of the term has a fixed end date, if the fixed period ends you now have repayment and can ask for a settlement figure to pay off the entirety of the mortgage at any time or you could manage your own pot and pay of a significant lump sump as you go into the next fixed rate period. Currently in most cases saving rates can be found to outperform mortgage rates so setting a lump sum aside might be the best option.

I have paid 25% off early, saving over £20k in interest, with no impact to monthly payment. Now saving lump sum to pay off when fixed rate ends which coupled with already accruing compound interest on higher saving rate should save another large lump of interest.

Perhaps there is more to consider than best headline interest rate and it might be worthwhile to assess lenders who will apply a more flexible and supportive policy. 

BarelySentientAI

BikingBud said:

Only the fixed part of the term has a fixed end date, if the fixed period ends you now have repayment and can ask for a settlement figure to pay off the entirety of the mortgage at any time or you could manage your own pot and pay of a significant lump sump as you go into the next fixed rate period. Currently in most cases saving rates can be found to outperform mortgage rates so setting a lump sum aside might be the best option.

FTFY.  Now it's good advice.

BikingBud

BarelySentientAI said:

BikingBud said:

Only the fixed part of the term has a fixed end date, if the fixed period ends you now have repayment and can ask for a settlement figure to pay off the entirety of the mortgage at any time or you could manage your own pot and pay of a significant lump sump as you go into the next fixed rate period. Currently in most cases saving rates can be found to outperform mortgage rates so setting a lump sum aside might be the best option.

FTFY.  Now it's good advice.

Was it incorrect or do you just disagree with it?

Please advise if my understanding is factually correct or otherwise:

• I want to pay off my mortgage I ask for a settlement figure. 
• If i'm in a fixed rate period then I can expect to pay an ERC.
• If I'm not in a fixed rate period I can settle or pay off a lump sum without penalty and 
• Because there is no overpayment limit I can carry on paying whatever I want.
• In these circumstances they do not need to check affordability. 

Or

• I want to over pay on my fixed rate mortgage
• I have an overpayment allowance beyond which an ERC might be applicable
• I can overpay up to that allowance
• By the end of the fixed rate term I could have paid up to the sum of the monthly payments and the sum of the allowable overpayments.
• At the end of the fixed rate term I can seek another product, from the same or any other provider.
• I can exploit that period between deals to reduce the size of the loan, the capital advance, with funds from another source.
  
• Staying with the same lender a follow on system usually operates and in these circumstances they do not need to check affordability. 
• Moving to another provider would likely need a full assessment of both property, condition/value and affordability

Fixed mortgages are fixed rate deals with a contracted period of effect for that fixed rate ie 2 yrs, 3 yrs, 5 yrs etc

I will say this again I have reduced the whole term of my mortgage by overpaying, currently by approximately 2 1/2 years. The monthly payments were not reduced and I was not required to undergo another affordability check! Perhaps my lender is one of a kind but I don't think so.

As quite a few that come on the boards find themselves hampered by their lenders inflexible conditions it would seem that more attention should be given to understanding overpayment methods when taking out a mortgage, not just the headline interest rate.

Moreover many will be wanting accurate answers, that enable them to make their own decisions not just consider what you want to advise!

Whichever way you dress it up, the most effective way to reduce the cost of a mortgage is to pay it off in the shortest possible time, via overpayment, which might be why some lenders are now getting hardover about early repayment and are not wanting to reduce the term. As it impacts their income!

That said focussing on reducing mortgage debt when you have more expensive debt elsewhere or can get a better return from another route would not generally be the best purely financial option.

Hoenir

BikingBud said:

Some lenders are very happy to have their cake and eat it! There's is no legitimate reason to do another affordability check, you did that when you took out the product. 

Contractual changes require the agreement of both parties. The lender has the power to enforce it's own will in agreeing to any change. As usual mountains are made out of molehills. As for the majority of borrowers this isn't an issue in any event. Comprehnsion of the much bigger macro picture provides a more well balanced and rounded view. 

BikingBud

Hoenir said:

BikingBud said:

Some lenders are very happy to have their cake and eat it! There's is no legitimate reason to do another affordability check, you did that when you took out the product. 

Contractual changes require the agreement of both parties. The lender has the power to enforce its own will in agreeing to any change. As usual mountains are made out of molehills. As for the majority of borrowers this isn't an issue in any event. Comprehnsion of the much bigger macro picture provides a more well balanced and rounded view. 

Who's changing the contract?

I am discussing paying off an SVR mortgage, the bit that comes after the fixed, where you have both agreed fixed sums for a fixed term with and overpayment allowance. Yet they don't want to allow that fixed payment as they appreciate that they lose interest.

Mountains out of molehills, please give me the £25k I intend to save on my mortgage, so I can buy a new motorbike with the your molehill cash.

By the bigger picture I assume you mean the one where banks always win and you better not dare trying to consider anything that might impact upon that. 

Why do I need a rounded view, I want what is best for me, not to line the banks pockets with excessive profits.

I continue to be amazed that on a money saving site so much store is given to playing by the banks' rules rather than ensuring that you get what is best for you as an individual.

Understand, exploit and challenge.

BarelySentientAI

BikingBud said:

BarelySentientAI said:

BikingBud said:

Only the fixed part of the term has a fixed end date, if the fixed period ends you now have repayment and can ask for a settlement figure to pay off the entirety of the mortgage at any time or you could manage your own pot and pay of a significant lump sump as you go into the next fixed rate period. Currently in most cases saving rates can be found to outperform mortgage rates so setting a lump sum aside might be the best option.

FTFY.  Now it's good advice.

Was it incorrect or do you just disagree with it?

Factually incorrect.

The entire mortgage has a contractually fixed end date, not just the fixed interest deal.

You can ask for a settlement figure at any time, whether inside a fixed period or not.

The rest of your post was fine, decent advice in fact, and a good example of what some borrowers have been able to do with some lenders.  That's why I didn't quote or modify it.