Having trouble getting my head around the "Max 10% of balance" overpayment rule

martin2345uk

Have to say maths has never been my strong suit!

So I am allowed to overpay a max of "10% of your outstanding balance each year".

Say my balance is £70,000... so in year 1 I can pay a total of £7,000 and it doesn't matter how I split that per month? I can just divide it by 12 and overpay £583 a month..?

And then after 12 months I CANNOT carry on doing that because another 12 months of that would then be more than 10% of what is left.. is that right? So I would have to find my new balance after every year and work out 10% of that to see what I can now overpay for the following 12 months...?

Thank you all!

grumpy_codger

Yes, that's how I understand this. Your annual overpayment allowance is recalculated at the start of new  year. Not sure what year it is. I see calendar year at Halifax and mortgage year at HSBC.
However, when making overpayments you are likely to chose between two options:

1. reducing the term (with the origal contractual monthly payments)
2. reducing contractual monthly payments (with the original term).

In terms of future overpayments the first option seems to be better.

ACG

You need to check with your lender. 
I think for example, nationwide (could be wrong here) say 10% of the original balance. 
So on a £70k mortgage and a 5 year fix, that could be £7k per year for 5 years. 
But other lenders base it on the balance on the 1st Jan, others on the anniversary of the mortgage completing etc. 

Like everything in our industry, nothing is standard - keeps us on our toes. 

amnblog

ACG said:

You need to check with your lender. 
I think for example, nationwide (could be wrong here) say 10% of the original balance. 
So on a £70k mortgage and a 5 year fix, that could be £7k per year for 5 years. 
But other lenders base it on the balance on the 1st Jan, others on the anniversary of the mortgage completing etc. 

Like everything in our industry, nothing is standard - keeps us on our toes. 

Yes, the straightforward answer, check with your particular Lender.

grumpy_codger

I'm no expert, but IMO  "10% of your outstanding balance each year" isn't ambiguous unlike, say, "10% of your balance".

OUTSTANDING is there for a reason.

If so, the only thing to check is when this "year" starts.

jimjames

ACG said:

You need to check with your lender. 
I think for example, nationwide (could be wrong here) say 10% of the original balance. 
So on a £70k mortgage and a 5 year fix, that could be £7k per year for 5 years. 

Nationwide was definitely 10% of original loan, meant that towards the end of mortgage the 10% would have covered the entire balance outstanding

ACG

jimjames said:

ACG said:

You need to check with your lender. 
I think for example, nationwide (could be wrong here) say 10% of the original balance. 
So on a £70k mortgage and a 5 year fix, that could be £7k per year for 5 years. 

Nationwide was definitely 10% of original loan, meant that towards the end of mortgage the 10% would have covered the entire balance outstanding

I knew someone did it. I just wasnt 100% it was Nationwide. Good to know the knowledge is in there somewhere. 

Yorkie1

jimjames said:

ACG said:

You need to check with your lender. 
I think for example, nationwide (could be wrong here) say 10% of the original balance. 
So on a £70k mortgage and a 5 year fix, that could be £7k per year for 5 years. 

Nationwide was definitely 10% of original loan, meant that towards the end of mortgage the 10% would have covered the entire balance outstanding

Nationwide still is. My original loan was about £120K in 2010. My annual overpayment allowance is still £12K, even though the outstanding loan is far smaller loan. Although the annual repayment year has, I think, changed from the calendar year to the year starting with the month when the latest fixed product started (or similar).