Confusion over wording, Barclays mortgage overpayments

joitsme

Hi,

I just got my annual mortgage statement from Barclays and I don’t understand the wording about overpayments.

We’re on a 3.02% fixed interest rate for 5 years, 24 year mortgage of £100,800, started in September 2022.

I pay £492 DD monthly and over the past year have paid £3,500 in overpayments.

The wording I’m unsure about is:

Your overpayment balance reduces the amount of interest you’re charged but doesn’t reduce the outstanding mortgage balance which we calculate your contractual monthly payments on, or change your remaining term.

So my question is, am I missing something here? Where does my overpayment go if it’s not going to shorten my remaining term, or reduce my balance?
I am probably wrong, but from their wording, if the balance isn’t affected or my term isn’t shortened, my money is going where, exactly? Do I just not understand how interest works?

My logic tells me that you overpay and one of the above things would naturally happen because if your interest is going down, then you pay for less time, or you pay less for the same amount of time.

I’ve used the overpayment calculator on here and it says that I’ll pay my mortgage in around 12 years, but this goes against their wording.

Any advice on what I’m missing here would be appreciated!

thanks

la531983

Its still reducing your interest, its just not reducing your payments (or term), you would have to ask for this to be done. Obviously once your overpayment balance equals or exceeds the mortgage balance, its paid off.

I am with Barclays and have a fair few grand in my overpayment balance, when I put it on a new rate next year Im likely going to ask them to reduce the term and then my overpayment balance would reset to zero.

Gentoo365

It isn't reducing your 'contractual' term. 

But if you continue to overpay then the mortgage would be paid off earlier.

I suppose one other way to put it is that it would reduce the amount of interest you are paying so slightly more of each month's payment is used to reduce the amount owed.

joitsme

Thank you for your replies, I think I understand what’s going on now, the word contractual was throwing me off apart from anything else.

I’ll definitely talk to Barclays when I switch to a new interest rate in 3 years time.

Huffnagel

Hi All,

I'm with Barclays and the overpayment balance confuses me just the same. Is it still part of my mortgage or do they mean it's separate in the sense that I can use it to reduce my outstanding balance at the end of my fixed term while remortgaging?

To keep the maths simple, if I have £100,000 at the end of the term and £10,000 in my overpayment balance, then my new mortgage balance would start at £90,000?

It is confusing because the outstanding balance is being reduced every month with my payment+overpayment, so technically the overpayment balance seems virtual.

Fishyfish111

Your balance is coming down so you pay less interest.
Your obliged regular payment will remain the same until the end of your deal then if you only pick a new product the regular payment would be reduced to match the remaining years left (if interest rates are still the same)

You can however re-mortgage after your fix ends to reduce the number of years remaining but this is a longer process than a new product.

Fishyfish111

I am with HSBC but that is what happens to me. I am due a new product in July and they have already quoted a lower obliged payment although the interest charged is slightly above what I am on now.

Huffnagel

Thank you for the reply. I understand those. The thing that confuses me is this (quote from Barclays):

• We put any overpayments in an overpayment account linked to your mortgage account
• We reduce the balance you’re charged interest on each month by the amount you’ve overpaid 
• Your contractual monthly payment and mortgage term don’t change
• You can use the balance of your overpayment account to pay off your mortgage sooner than you would otherwise 

As far as I can understand, the overpayment account is still part of the mortgage balance because the monthly overpayments are already reducing my outstanding balance.
So if I have a £100,000 outstanding mortgage balance + £10,000 in my overpayment account, it does not mean I only owe them £90,000 when I remortgage - or does it?

Fishyfish111

In your example yes you definitely only owe 90.000 and will only be charged interest on  that amount.
You'll have to contact your bank as to when you can use that overpayment account to bring the outstanding mortgage down but will most likely if you remortgage like you say. 
Guess different banks do things slightly different.

Huffnagel

Great, I appreciate your reply.