Fee charged to reduce term - Is this usual?

Pooky23

We've recently been fortunate enough to be able to pay off 10k of our mortgage as a lump sum. As we can afford the current monthly payments we wanted to keep the monthly repayments the same but reduce the term by 2 years. However my BS said in order to "formally" reduce the term they will charge us £50. That to us seemed a bit steep.

I was advised that by making this overpayment this will automatically reduce the term anyway and at the next account review (March 09) they would recalculate how long until the loan was repaid. We would then have to wait until Jan 10 for our next annual statement to see the difference! In the meantime we would benefit from reduced monthly payments.

However, I can't help but feel a little suspicious that the advice they gave me was to serve their best interests instead of mine. We've already been overpaying the mortgage now for 4 years by £50 per month and this has never made the slightest difference to the term of the mortgage. Each time we get our annual statement it says it will be "repaid within the term of the loan". This is pretty disheartening as the whole point in overpaying is to clear the mortgage asap.

Our mortgage is with Accord mortgages and we are currently on year 2 of a 5 year fixed rate. Currently have just under 16 years left (want to reduce it to 14 years).

Do you think it is worth paying £50 for them to "formally" reduce the term or stick with their advice to continue overpaying and allow the mortgage term to naturally reduce at each account review?

Thanks

JonnyBravo

Sounds to me as if they've just been reducing the monthly payment not the term with the overpayments? Difficult to tell with the overpayments only being £50/month though. It could take a long while at that rate to reduce the term by even one month depending on your loan size.

As for the charge, yep, it's not that uncommon for people to charge for it.... especially during a fixed rate period. Plenty of mortgages don't even let you overpay during the deal period.
I've not heard of Accord. I'd say your first step is for you to read your T&C's

Pooky23

JonnyBravo wrote: »

Sounds to me as if they've just been reducing the monthly payment not the term with the overpayments? Difficult to tell with the overpayments only being £50/month though. It could take a long while at that rate to reduce the term by even one month depending on your loan size.

As for the charge, yep, it's not that uncommon for people to charge for it.... especially during a fixed rate period. Plenty of mortgages don't even let you overpay during the deal period.
I've not heard of Accord. I'd say your first step is for you to read your T&C's

Accord are part of the Yorkshire Building Society. Checked our T&C and it says we can stipulate to reduce the monthly repayments or term but doesn't mention anything about a charge. We've had a mortgage with them for 4 years so this may have been introduced recently I suppose. I think I will ring them again....

[Deleted User]

If they're charging you money to "formally reduce" the term, personally I'd leave the term as it is. The stated term doesn't really matter all that much (though it's nice to see it drop); it's how much is owing and the interest accrued on it that matters. IOW, don't worry about the term - it's still worth making the overpayments.

If your overpayments are in the region of £50 a month, I wouldn't say that's unusual. Our building society, Nationwide, will only reduce our monthly repayments or term if we overpay by £500 or more (and until we're on the BMR, overpaying by £500.01 or more incurs a redemption penalty). Overpayments of less than £500 don't affect the term or repayments until the mortgage's anniversary, or unless there's an interest rate change in the interim. (As far as I can tell from recent changes on our account, an interest rate change can reduce the monthly payments but not the term, though this isn't altogether clear.) I'm guessing YBS do something similar...?

Kaz2904

Have they actually reduced your monthly payment?
If they haven't then your mortgage will run out before it should do but if they have then your are effectively prepaying your mortgage.
If you would like to get a rough idea every month of how you are doing then I can recommend setting yourself a snowball on www.whatsthecost.com/snowball.aspx so that you can update it regularly and see your term reducing when it actually will.
I've had my snowballs for over 2 years now and it's great to be able to see how much I've paid off and how well it's going.
I have more than one snowball going so that I can keep my original one(s) but circumstances do change so I start a new snowball.
You do have the advantage now of being able to add new accounts to your snowball.
Go for it, you'll be pleasantly surprised.

financialbliss

Marvin_the_Martian wrote: »

Our building society, Nationwide, will only reduce our monthly repayments or term if we overpay by £500 or more (and until we're on the BMR, overpaying by £500.01 or more incurs a redemption penalty).

Hi Marvin,
The above may be incorrect, depending on what Nationwide mortgage product you've got.

I've been on a fix with Nationwide since 2004 and I've re-negotiated the term 3 times - in each case this results in my normal monthly payment going up, plus I can still overpay by up to 500.00 each month. There's (currently) no charge for doing this either.

Check my diary - post #71 on page 4, post #93 on page 5 and #98 also on page 5.

Sorry - haven't had time to put links in to the above.

Hope this helps...
FB.

[Deleted User]

financialbliss wrote: »

I've been on a fix with Nationwide since 2004 and I've re-negotiated the term 3 times - in each case this results in my normal monthly payment going up, plus I can still overpay by up to 500.00 each month. There's (currently) no charge for doing this either.

Ah, fair enough - for some reason I was under the impression that the term couldn't normally be changed during a (fixed/tracker) period except through overpayments. I stand corrected!

Pooky23

Kaz2904 wrote: »

Have they actually reduced your monthly payment?
If they haven't then your mortgage will run out before it should do but if they have then your are effectively prepaying your mortgage.

Yes, they have reduced our monthly repayments so the term will not alter. Either I completely misunderstood the guy on the phone or they were telling me porkies. Mmm, gonna have to have a think about what to do...

darkhorse01

financialbliss wrote: »

Hi Marvin,
The above may be incorrect, depending on what Nationwide mortgage product you've got.

I've been on a fix with Nationwide since 2004 and I've re-negotiated the term 3 times - in each case this results in my normal monthly payment going up, plus I can still overpay by up to 500.00 each month. There's (currently) no charge for doing this either.

Check my diary - post #71 on page 4, post #93 on page 5 and #98 also on page 5.

Sorry - haven't had time to put links in to the above.

Hope this helps...
FB.

I have made a slight oversight with Nationwide with regards to overpayments. Have been happily overpaying by £499 per month for the last 5 or 6 months, thinking that because I was below the 500 trigger limit I could ring up and tell them to reduce my term at some point. Called them yesterday to discover that because of the recent interest rate drops the payment reductions I thought were solely down to the rate change also included a reduction in payments. So now I have requested the term change forms and will knock a couple of years off my current 20.5. Have also informed them I want future overpayments to reduce the term, so will be quite interested to see what effect this has on the agreed redemption dates viewable in their online banking after whacking in another 500.

Great diary you have by the way.

spooky25

hi pooky 23

im with the same mortgage company and have found that some of their charges if you pay over the top of the mortgage overpayment limit can cause you to be out of pocket .

Im on a interest only mortgage with them and am I am allowed to pay 12.5% percent of the outstanding balance of the mortgage per year but lets say I wanted to pay over that 12.5 % in the year I would be charged something like £3000 to make that additional payment to them.

this annoys me that they do this but I called them to find out how the mortgage's interest payment was calculated if its monthly I would suggest that you try and stick to the limit of the amount you are allowed to pay in overpayments and then as soon as your fixed rate is up try and go for something that wouldnt charge you those silly excess fees.

however if your interest is calculated daily I would try to pay a set figure in overpayments every month on top of your standard payment this would help reduce the interest down quicker as you are paying the interest daily helping you to reduce the capital , meaning you would have less to pay in interest the following month .

I hope that this may be of some use to you and good luck with clearing the mortgage.

spooky25