Mortgage overpayment query

pb3

Hi Everyone,

I'm a newcomer to morgages in general so my apologies if my query is rather basic and should be obvious 

My mortgage provider allows for overpayments without penalty of up to 10% per year over the early repayment charge period, which is 2 years in length.

My query - Is the 10% normally a fixed amount based on the balance at completion - or - is it based at the outstanding balance each year?

So if for simplicity my mortgage balance is £200,000 at completion, I am allowed to overpay up to £20,000 over the first year. Over the next year would I still be allowed to overpay £20,000 or would it be a lower amount based on the balance outstanding at the start of the second year?

If have read the mortgage documentation - and while it seems to imply the latter it does not state this.

The thoughts of of the forum would be appreciated.

la531983

Different lenders have different policies, you likely will have to name the lender to get any meaningful advice other than "check your paperwork" or "ring them and ask".

Exodi

Who is the lender?

I'm with Nationwide and they're 10% of the original balance, but it can vary.

Also what is the interest rate of the mortgage? Even if you weren't able to overpay as much as you like, you can always put the money in a different account earning interest (with the long term ambition it'll be used to pay off the mortgage). There are regular savers paying 7%+ - I'd certainly give serious thought to contributing to one of them before overpaying right away (unless you're expecting to pay tax on the interest).

saajan_12

pb3 said:

My query - Is the 10% normally a fixed amount based on the balance at completion - or - is it based at the outstanding balance each year?

..

If have read the mortgage documentation - and while it seems to imply the latter it does not state this.

The thoughts of of the forum would be appreciated.

There's no 'normally' here, I've seen both methods applied by different lenders. You just have to go off a reasonable interpretation of what the offer / contract says. 

Your options are to
a) call to ask them - that'll avoid any debate over ERCs or 
b) stick to your interpretation and argue if they say its something else - more risky, but if the overpayment is critical to you then may be worth it. 

pb3

Exodi said:

Who is the lender?

I'm with Nationwide and they're 10% of the original balance, but it can vary.

Also what is the interest rate of the mortgage? Even if you weren't able to overpay as much as you like, you can always put the money in a different account earning interest (with the long term ambition it'll be used to pay off the mortgage). There are regular savers paying 7%+ - I'd certainly give serious thought to contributing to one of them before overpaying right away (unless you're expecting to pay tax on the interest).

The lender is HSBC and the fixed rate is 3.91%.  I didn't realise the interpretation of the overpayment amount varies across lenders

I'll bear your comment regarding the the regular saver strategy. 

pb3

saajan_12 said:

pb3 said:

My query - Is the 10% normally a fixed amount based on the balance at completion - or - is it based at the outstanding balance each year?

..

If have read the mortgage documentation - and while it seems to imply the latter it does not state this.

The thoughts of of the forum would be appreciated.

There's no 'normally' here, I've seen both methods applied by different lenders. You just have to go off a reasonable interpretation of what the offer / contract says. 

Your options are to
a) call to ask them - that'll avoid any debate over ERCs or 
b) stick to your interpretation and argue if they say its something else - more risky, but if the overpayment is critical to you then may be worth it. 

Thanks. You are correct - it does look like I will have to ring them (HSBC) to clarify.

The relevant bit of the paperwork is as follows:

"You have an annual overpayment allowance of 10% during the Early Repayment Charge period. In the first year this will be based on the amount of the Loan at completion or the date the rate switch became effective. The overpayment allowance for new loans will be reset on the anniversary of completion or for rate switch applications the date the rate switch became effective, until the end of the Early Repayment Charge period."

"In the first year" to me implies that the overpayment criteria in the second year may be different to that in the first.

I will contact HSBC.

Thank you for responding.

TrickyDicky101

The overpayment allowance for new loans will be reset on the anniversary of completion or for rate switch applications the date the rate switch became effective

That unequivocally looks to me like it resets to 10% of the current outstanding balance each year and so is not simply 10% of the original balance.