Mortgage overpayments not reducing term!

Ryhs_Moggy · 20 October 2019 at 6:23PM

I have 2 barclays mortgages (one is for additional borrowing for loft conversion we did a few years ago) secured against my property and I make regular monthly overpayments on each account. These overpayments are shown on my annual mortgage statement but the end dates of the mortgages never seems to be brought forward. Therefore what is happening to my overpayments? I don't understand this because when I use the MSE Mortgage overpayment calculator it shows term is reduced by making one off and monthly overpayments, so why does my mortgage statement not reflect this? My monthly payments remain static and are not reducing. Should I get in touch with Barclays directly?

Thrugelmir · 20 October 2019 at 6:34PM

Firstly your mortgage term is contractual. This will not change unless you apply. To effect a change of mortgage term, the lender will perform affordability checks.

Secondly monthly payments will only be recalculated when there is a change of interest rate.

Overpayments will reduce the mortgage term if they are maintained. As you will naturally pay off the debt before the contractual date.

Leaving the term unchanged would give you flexibility should your financial circumstances change, i.e. allow you to reduce your monthly payments.

annabanana82 · 20 October 2019 at 8:01PM

When we were with Natwest for our mortgage overpayments came off the capital but did not affect either the term or the repayments, though in theory £200 knocked a month off I think??
We are now with Santander and are in a position to pay 10% off a year - a big change from our Natwest days. Anyway we have to pick between reducing the term or the payment, we opt for the term as it seems a bit counterproductive to reduce our monthly repayment. But I think it essentially comes down to individual banks as to how they treat overpayments, in your case it would naturally come to an end earlier than agreed.

AnotherJoe · 20 October 2019 at 9:16PM

The problem with reducing the term is that it's contractual. If you wish to rein back on the overpayments, for example because you got into financial difficulties or the penny dropped that you were in fact losing out on the tax benefits of putting the money into a pension in order to save 1 or 2%, possibly lower than inflation is reducing the mortgage anyway , you may not be able to and yiu are locked into that shorter term. As Thrugelmir says yiu are retaining flexibility.
As a matter of fact the mortgage term is of course actually reduced since you will pay it off earlier by paying more, that's maths.
When you overpay and don't reduce the term (contractually) they will reduce the future payments to keep the length the same but you can compensate for that by just paying a bit more ...... if you haven't yet discovered how much you are losing in tax relief that is

getmore4less · 20 October 2019 at 10:14PM

Barclays allow overpayment without reducing payment or term.

That is the quickest way to reduce the ballance.

You can also request the payment never goes down, only up if needed, as an option.

Zero_Sum · 20 October 2019 at 10:38PM

With Nationwide, if you make an overpayment of £500 or more, they recalculate your monthly payment.

You can also change your settings so that the term reduces instead.

Ryhs_Moggy · 21 October 2019 at 10:57AM

Many thanks for all the replies. The reason I wish to amend the term is I have only 7 years remaining on my 2 mortgages, and I have money in my savings earning very little interest and therefore I like the idea of paying off a lump sum of mortgage debt. These are both repayment mortgages and the main loan is on a base rate tracker and I am paying a very low rate of 0.92% currently. AnotherJoe mentions paying into a pension in order to benefit from tax relief rather than overpaying mortgage, but I already pay 5% salary into my company DC scheme and make AVCs of 5% (company pays 10% also). Should I rethink my plans?

Blackbeard_of_Perranporth · 21 October 2019 at 12:16PM

My current investments make more money each year than the interest I pay on my mortgage, hence my net worth increases year on year, as such, although I could tell the building society to go forth, I would lose more money, this way if I paid it off.

AnotherJoe · 21 October 2019 at 5:25PM

Ryhs_Moggy wrote: »

Many thanks for all the replies. The reason I wish to amend the term is I have only 7 years remaining on my 2 mortgages, and I have money in my savings earning very little interest and therefore I like the idea of paying off a lump sum of mortgage debt. These are both repayment mortgages and the main loan is on a base rate tracker and I am paying a very low rate of 0.92% currently. AnotherJoe mentions paying into a pension in order to benefit from tax relief rather than overpaying mortgage, but I already pay 5% salary into my company DC scheme and make AVCs of 5% (company pays 10% also). Should I rethink my plans?

1. Are you a higher rate tax payer. If so, almost certainly.
2. Is your pension on track to return what you hope when you retire? 20% is more than most would put in but it depends how you are doing.
3. Against a rate of 0.92%, incredibly low, lower than inflation, dont be in a rush to pay off, inflation is whittling it down more than you are paying in interest.

getmore4less · 21 October 2019 at 6:09PM

Ryhs_Moggy wrote: »

Many thanks for all the replies. The reason I wish to amend the term is I have only 7 years remaining on my 2 mortgages, and I have money in my savings earning very little interest and therefore I like the idea of paying off a lump sum of mortgage debt. These are both repayment mortgages and the main loan is on a base rate tracker and I am paying a very low rate of 0.92% currently. AnotherJoe mentions paying into a pension in order to benefit from tax relief rather than overpaying mortgage, but I already pay 5% salary into my company DC scheme and make AVCs of 5% (company pays 10% also). Should I rethink my plans?

Unless hitting penaties(none on old lifetime trackers) you can ignore the contractual term you mortgage finishes when there is nothing left to pay.

Any extra charges for finishing early, stop overpayment when it gets very low get the payment recalculated to a few £a month and sit it out.

Pension and savings are paying more than 1%

MaxiRobriguez · 21 October 2019 at 6:22PM

Ryhs_Moggy wrote: »

Many thanks for all the replies. The reason I wish to amend the term is I have only 7 years remaining on my 2 mortgages, and I have money in my savings earning very little interest and therefore I like the idea of paying off a lump sum of mortgage debt. These are both repayment mortgages and the main loan is on a base rate tracker and I am paying a very low rate of 0.92% currently. AnotherJoe mentions paying into a pension in order to benefit from tax relief rather than overpaying mortgage, but I already pay 5% salary into my company DC scheme and make AVCs of 5% (company pays 10% also). Should I rethink my plans?

Whatever the answer it, it is not to pay off your mortgage.

Pension sacrificing is probably your best bet as you'll benefit from a 30%+ uplift that you wouldn't have had if paying off mortgage thanks to the ninth wonder of the world: tax avoiding.

If you want to keep access to the cash, then you should be able to find a bank account which pays more in interest than 0.92% - so by not paying off the mortgage you make a small amount. Not a lot, but, you get paid and have access to the cash in terms of an emergency.

That's two ends of the scale. Everything in the middle beats the overpayment option too.

Mortgage overpayments not reducing term!

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