Beware of overpaying!

jennyjelly

Obviously we should all be putting more into our mortgages than just the basic contracted amount, but I would like to offer a word of warning about overpayments.

We have a mortgage with ING and when I contacted them recently to arrange regular overpayments the person I spoke to said that they save up whatever extra you pay and they pay it off the capital every time it reaches £1000. So basically, if I am understanding this correctly, you are putting money into a savings account that pays no interest.

I'm just passing this on as it is worth checking whether this is how your lender works. I decided to save the extra amount myself in a separate high interest account and pay £1000 off each time it reaches that level. It will get there quicker with the interest added and with a standing order I don't even need self-discipline.

macca64

This might be a lender specific problem, as I know Nationwide calculate interest daily on the outstanding balance, and the capital owed and the interest charged reduces with any overpayments.

If that is the case with ING then you are doing the right thing in saving the overpayments until you get to £1,000.

dimbo61

check the terms and conditions of your mortgage and contact them again to
confirm in writing what you were told over the phone.
some lenders still work interest annually and cant or wont do it on a daily basis.
save your money into a high interest account or tax free ISA and if this is paying a higher rate of interest than your mortgage then wait till your mortgage deal has finished before clearing part of the mortgage with your savings GOOD LUCK

sciencegirl_3

Hi

I also have an ING mortgage - my understanding of the overpayments is that once you have overpayed by 1000 or multiples thereof you can ask to have it "locked away" so it is no longer available for you to borrow back but it will still reduce your capital balance. I also queried this when I took out the mortgage and was assured that it doesnt mean that it doesnt reduce your debt from the time it is paid in to your account. (Does that make sense??!) If I were you I would phone them to check.
Hope this helps

SG

chal

I have a mortgage with Portman (so technically it's Nationwide) and we were told
a) overpayments can be any amount, but only those of £500 or more are taken from the capital
b) overpayments of under £500 are taken from the interest

This was made very clear when we applied for the mortgage.

To add a little in fairness, the mortgage advisor was 100% straight with us on everything, and clarified everything we asked about.

Jonbvn

chal wrote: »

I have a mortgage with Portman (so technically it's Nationwide) and we were told
a) overpayments can be any amount, but only those of £500 or more are taken from the capital
b) overpayments of under £500 are taken from the interest

If you have a repayment mortgage then any overpayment must be taken from the capital, since your regular payments already include all the interest in one month. However, when you overpay, you can reduce the monthly payments or reduce the term.

egon

We have a mortgage with C&G, the overpayment is not taken into account until after the yearly statement. I only found this out after we just payed them over £1000. So that is now sitting there and is making no interest. grrrr

Since then, I put all overpayment in a high savings account until needed!

Ah, this reminds me, I was going to check, what we can do about the £1000.
If anything!

wymondham

Seems to be more a case of the mortgage product not being as flexible as first thought rather than problems overpaying par-se. All my overpayments occured immediately off the mortgage capital amount, reducing interest payments immediately (One Account).

As a thought, do you think this could be the next thing people get stung on?

aliasojo

I have an ING mortgage too and I was told that 'capital' payments i.e payments that actually reduce the amount you owe do have £1000 minumim threshold. However, any overpayment less than £1000 that you make, sits alongside and offsets the interest in the meantime until it grows to be £1000.

So if I owe £10,000 and I over pay by £990 then I'm only paying interest on £9,010.

I made sure I clarified this, so if it's incorrect it's not because of my misunderstanding it's because I was given incorrect information. I'm a little concerned now as I do try to overpay when I can and if my information was wrong then I'm obviously being negatively affected by it. Unfortunately I was told several things that were incorrect when the mortgage was originally set up so it wouldn't surprise me if this were another.

I think a phone call to ING to clarify might be in order. :undecided


Edit: Phoned ING and what I was originally told is correct. Although you can't make a capital payment unless it's £1000 or more, any overpayment you do make offsets the interest owed. So you dont get interest paid on the overpayment but you dont get charged interest on that amount in your mortgage either. So overpay away, unless you have a savings account that pays a higher rate of interest than your mortgage costs....then you'd be better saving elsewhere and transferring once it reaches £1000 as said above.

jennyjelly

Aliasojo, thanks for clarifying that. We too were also given several incorrect facts which we have had to query - I think they have made the classic error of not having enough well-trained staff in place before expanding.

So it looks as if it is still worth overpaying. I shall sort it out over the weekend.

chal

Jonbvn wrote: »

If you have a repayment mortgage then any overpayment must be taken from the capital, since your regular payments already include all the interest in one month. However, when you overpay, you can reduce the monthly payments or reduce the term.

Sorry, you're right. Payments of £500 or more are instantly taken from the capital, payments of £500 or under are (if memory serves) totalled and taken from the capital at the end of the year.

Needless to say, we overpay by a minimum of £500 at a time.