Overpayments and interest rate change trick

IveSeenTheLight

Hi all,
I have fervently been overpaying my mortgage in order to reduce the amortization period.
I received a letter from my mortgage lender stating that as a result of the interest rate change, my monthly repayments were to lower.
The trick was that as a result of my overpayments, my monthly payment dramatically reduced.
The result of this is that I would still have to keep paying my mortgage for the whole term and not reduced as my intentions with the mortgage.

I called up the lender and said that I wished the payment to remain the same (or at worst case reduced by 0.25%) and that the overpayments should not be used to re-calculate my monthly payment.

After a bit of a discussion and asking to speak to a manager, I managed to convince them to keep my monthly payments the same.
I used the argument that by utilising my overpayments into the new monthly payment required, they had effectively wiped out my overpayments and I should therefore be able to make another maximum overpayment into the mortgage and if the rates change again in the next few months (as potentially reported) I would then be able to make another maximum overpayment calculation.
I believe this made them wonder about the loss of interest they would have if I could make these additional overpayments.

Watch out for the monthly payment re-calculation being used to re-set your amortization period.

Paul_Herring

I see nothing wrong with them taking into account your previous over payments when calculating the new (minimum) repayment required - of course they're working it out to completing your mortgage on the same date as you arranged at the start - if you're overpaying, then of course your minimum payments will decrease.

I do however find it somewhat strange that you appear to have had so much difficulty in keeping your current level of repayments in place however. Perhaps you rang them up with the attitude that they were diddling you (as you have here,) and confused the poor person on the other end of the phone?

A simple "I note you've sent me a letter lowering my monthly payment - I'd like to keep it at the same higher amount please - what do I need to do?" would probably have sufficed.

the overpayments should not be used to re-calculate my monthly payment.
[...]
I used the argument that by utilising my overpayments into the new monthly payment required, they had effectively wiped out my overpayments and I should therefore be able to make another maximum overpayment into the mortgage and if the rates change again in the next few months (as potentially reported) I would then be able to make another maximum overpayment calculation.

This will not happen. You understanding of how mortgages work seems a little off.

angelavdavis

If you consult the Mortgage Free in Three Years thread, someone recently had this problem.

They solved it by letting the bank know via a letter that their overpayment should be a Capital Repayment and confirming the monthly amount should not be changed. They also asked for a revised Capital Balance and end date.

MarkyMarkD

My lender, A&L, writes to you when you make a capital payment saying that they will reduce your payments and keep the term the same, but that you can ask them to do the opposite if you desire.

At the end of the day, you sign up to a specific mortgage term and you can't assume they'll know how you want any overpayment to be treated - so tell them at the time you make the payment.

groatie_queen

Hi there

I got round the variable payment situation by changing from a direct debit to a standing order which was a permanently fixed amount (unless I changed it myself) - couldn't be varied by the lender in the way that a direct debit could be.

This might be worth considering.

Best wishes

GQ

CLAPTON

I dont see what difference it makes as you can simply continue to make overpayments with include the amount reduced from new 'normal' monthly payment.

IveSeenTheLight

Ok, just to clarify a few things

Paul_Herring wrote: »

I see nothing wrong with them taking into account your previous over payments when calculating the new (minimum) repayment required - of course they're working it out to completing your mortgage on the same date as you arranged at the start - if you're overpaying, then of course your minimum payments will decrease.

The problem is that many people over pay as a way of reducing the time they are to make payment and of course the amount of interest you will then incurr. They are of course calculating to their benefit so that you pay for longer and pay more

Paul_Herring wrote: »

I do however find it somewhat strange that you appear to have had so much difficulty in keeping your current level of repayments in place however. Perhaps you rang them up with the attitude that they were diddling you (as you have here,) and confused the poor person on the other end of the phone?

A simple "I note you've sent me a letter lowering my monthly payment - I'd like to keep it at the same higher amount please - what do I need to do?" would probably have sufficed.

This will not happen. You understanding of how mortgages work seems a little off.

When I made the initial overpayment I was advised that it was company standard to re-calculate at the time of interest rate changes meaning the amortization period would stay the same.

I politely advised that this was not why I wished to make overpayments and asked whether they could maintain the same payments.
I was advised that I could, however as it is an automated process I would need to make a call at the time of the interest rate change to ensure that the payments remained the same.

When I tried to excercise this in December due to the Interest Rate change, I was initally told point blankly that this was not an option and that I must have been miss-informed initally to which they apologised for.

As I would not accept this, I asked to speak to a manager with whom I managed to agree that it was possible to do this (although not standard) and that I could call him whenever there was an interest rate change to ensure that my monthly payments remained the same.

I have come to learn over the last year that on many occasions (especially telephone operators), the person is trained to respond in a certain way, and very often are unaware or do not have the authority to do anything other than what they are trained to do. It's only by speaking to someone with more authority that you can actually get anywhere.
I also know that when doing this, if you behave very politely and reasonably, then there is much to be accomplished.

I can assure you that I did not phone up with an attitude and I always make sure I speak to whoever with utmost respect as this is the best way of making progress.

Paul_Herring wrote: »

This will not happen. You understanding of how mortgages work seems a little off.

I can also assure you I have very much seen the light as to how mortgages work, the interest accrued and the money to be saved by paying off earlier.

I tried to keep my initial post short without going too much into detail. My aim was only to bring this issue to everyone elses attention

angelavdavis wrote:

If you consult the Mortgage Free in Three Years thread, someone recently had this problem.

They solved it by letting the bank know via a letter that their overpayment should be a Capital Repayment and confirming the monthly amount should not be changed. They also asked for a revised Capital Balance and end date.

Thanks, I did this initially via telephone, but I very much intend to back this up now with a recorded letter.

MarkyMarkD wrote:

My lender, A&L, writes to you when you make a capital payment saying that they will reduce your payments and keep the term the same, but that you can ask them to do the opposite if you desire.

At the end of the day, you sign up to a specific mortgage term and you can't assume they'll know how you want any overpayment to be treated - so tell them at the time you make the payment.

Thanks MarkyMarkD,
After making my overpayments, my monthly payment was initially kept the same as per my request, it was only at the time of an interest rate change that they re-calculated

groatie_queen wrote:

Hi there

I got round the variable payment situation by changing from a direct debit to a standing order which was a permanently fixed amount (unless I changed it myself) - couldn't be varied by the lender in the way that a direct debit could be.

This might be worth considering.

Best wishes

GQ

I initially had the DD fixed payment route, however I managed to save up enough to put down my maximum overpaymnet for the year, significantly reducing the interest I pay monthly, so changed to the one off payment to maximise the interest saved.

I am now saving approx 140 pounds per month that I would have been paying in interest without my overpayments

Clapton wrote:

I dont see what difference it makes as you can simply continue to make overpayments with include the amount reduced from new 'normal' monthly payment.

The difference is that if I did not make any more overpyments and allowed them to re-set my amortization period, I would be paying almost 12,000 pounds more over the term