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  • FIRST POST
    • Ryhs Moggy
    • By Ryhs Moggy 20th Oct 19, 6:23 PM
    • 12Posts
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    Ryhs Moggy
    Mortgage overpayments not reducing term!
    • #1
    • 20th Oct 19, 6:23 PM
    Mortgage overpayments not reducing term! 20th Oct 19 at 6:23 PM
    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?
Page 1
    • Thrugelmir
    • By Thrugelmir 20th Oct 19, 6:34 PM
    • 65,450 Posts
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    Thrugelmir
    • #2
    • 20th Oct 19, 6:34 PM
    • #2
    • 20th Oct 19, 6:34 PM
    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.
    ““there really is no such thing as ‘the future’, singular. There are only multiple, unforeseeable futures, which will never lose their capacity to take us by surprise.””
    ― Niall Ferguson
    • annabanana82
    • By annabanana82 20th Oct 19, 8:01 PM
    • 132 Posts
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    annabanana82
    • #3
    • 20th Oct 19, 8:01 PM
    • #3
    • 20th Oct 19, 8:01 PM
    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
    • By AnotherJoe 20th Oct 19, 9:16 PM
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    AnotherJoe
    • #4
    • 20th Oct 19, 9:16 PM
    • #4
    • 20th Oct 19, 9:16 PM
    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
    • By getmore4less 20th Oct 19, 10:14 PM
    • 37,653 Posts
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    getmore4less
    • #5
    • 20th Oct 19, 10:14 PM
    • #5
    • 20th Oct 19, 10:14 PM
    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.
    Last edited by getmore4less; 20-10-2019 at 10:19 PM.
    • Zero Sum
    • By Zero Sum 20th Oct 19, 10:38 PM
    • 1,372 Posts
    • 1,078 Thanks
    Zero Sum
    • #6
    • 20th Oct 19, 10:38 PM
    • #6
    • 20th Oct 19, 10:38 PM
    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
    • By Ryhs Moggy 21st Oct 19, 10:57 AM
    • 12 Posts
    • 2 Thanks
    Ryhs Moggy
    • #7
    • 21st Oct 19, 10:57 AM
    • #7
    • 21st Oct 19, 10:57 AM
    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
    • By Blackbeard of Perranporth 21st Oct 19, 12:16 PM
    • 6,385 Posts
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    Blackbeard of Perranporth
    • #8
    • 21st Oct 19, 12:16 PM
    • #8
    • 21st Oct 19, 12:16 PM
    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.
    Cardiac Arrest - Electrical - Patient unconscious! Heart Attack - Plumbing - Patient conscious!
    Defibrillators Cannot Cure a Heart Attack!
    • AnotherJoe
    • By AnotherJoe 21st Oct 19, 5:25 PM
    • 16,261 Posts
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    AnotherJoe
    • #9
    • 21st Oct 19, 5:25 PM
    • #9
    • 21st Oct 19, 5:25 PM
    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?
    Originally posted by Ryhs Moggy

    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.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • getmore4less
    • By getmore4less 21st Oct 19, 6:09 PM
    • 37,653 Posts
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    getmore4less
    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?
    Originally posted by Ryhs Moggy
    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
    • By MaxiRobriguez 21st Oct 19, 6:22 PM
    • 611 Posts
    • 452 Thanks
    MaxiRobriguez
    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?
    Originally posted by Ryhs Moggy
    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.
    • Nebulous2
    • By Nebulous2 21st Oct 19, 7:00 PM
    • 2,501 Posts
    • 1,656 Thanks
    Nebulous2
    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.
    Originally posted by Zero Sum

    Or you can ask them to do neither.
    • Ryhs Moggy
    • By Ryhs Moggy 25th Oct 19, 1:04 PM
    • 12 Posts
    • 2 Thanks
    Ryhs Moggy
    Whilst I take onboard the points above regarding interest rate on my mortgage being lower than one could achieve in a savings account, surely you are missing the point? The interest on my mortgage is a low rate but it's based on £70k of o/s mortgage that I must repay. The ammount I would be paying off would only be circa £5000. Plus, I want to end my mortgage/s early so as to free up extra disposable monthly income. Based on this can anyone please suggest why NOT overpaying is sensible?
    • Typhoon2000
    • By Typhoon2000 25th Oct 19, 2:46 PM
    • 1,004 Posts
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    Typhoon2000
    There is nothing wrong with paying your mortgage off early.
    Paying extra into a pension is not always worth it either, as you may have to pay the same tax saving or more when your pension pays out, if you continue to work or have other income.
    • getmore4less
    • By getmore4less 25th Oct 19, 2:51 PM
    • 37,653 Posts
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    getmore4less
    Whilst I take onboard the points above regarding interest rate on my mortgage being lower than one could achieve in a savings account, surely you are missing the point? The interest on my mortgage is a low rate but it's based on £70k of o/s mortgage that I must repay. The ammount I would be paying off would only be circa £5000. Plus, I want to end my mortgage/s early so as to free up extra disposable monthly income. Based on this can anyone please suggest why NOT overpaying is sensible?
    Originally posted by Ryhs Moggy
    BY putting the £5000 in savings and getting more interest than you are paying you save(create) more money than using the cash to pay off the mortgage.

    The size of the mortgage is not relevant.
    • SouthLondonUser
    • By SouthLondonUser 25th Oct 19, 8:41 PM
    • 1,062 Posts
    • 584 Thanks
    SouthLondonUser
    OP,

    maybe you might understand better what getmore says with an example. The numbers are not realistic, it's just for an easy example.

    Let's say you have a £100k mortgage at a 1% interest rate. You have £10k which you can use to either pay down the mortgage or you can put in a saving account at 1.5%.

    Let's assume for simplicity that the mortgage is interest only.

    Over one year, if you use the 10k to repay the mortgage, you will pay 90k x 1% = 900 of interest and not receive any interest income.

    If you put that money in a saving account, you will pay 1000 of interest, but receive 150 of interest, so the net interest payment will be 850 which is < 900. This assumes you don't pay taxes on interest income.
    • Ryhs Moggy
    • By Ryhs Moggy 27th Oct 19, 12:46 PM
    • 12 Posts
    • 2 Thanks
    Ryhs Moggy
    I'm still confused but thanks for the assitance everyone. I'm off for a pint.
    • Sea Shell
    • By Sea Shell 27th Oct 19, 1:38 PM
    • 2,844 Posts
    • 5,093 Thanks
    Sea Shell
    We paid our mortgage off before the current pension freedoms came into effect.

    If we had our time again, with the help of this forum, we probably wouldn't have paid it off early.

    Make each £ work as hard as it can for you.

    It really is worth getting your head around the maths at play.
    " That pound I saved yesterday, is a pound I don't have to earn tomorrow " JOB DONE!!
    This should now read "It's time to start digging up those Squirrelled Nuts"!!!
    • Ryhs Moggy
    • By Ryhs Moggy 27th Oct 19, 5:33 PM
    • 12 Posts
    • 2 Thanks
    Ryhs Moggy
    No-one is discussing the elephant in the room. By clearing the mortgages early I get an extra £1100 in my pocket each month from no longer paying it! Both mortgages will be clear (based on my current monthly overpayments) when I am aged 53, around 5 years from now.

    I thank you all for the excellent replies so far. I need to go and check the best savings accounts!
    Last edited by Ryhs Moggy; 27-10-2019 at 5:35 PM.
    • Sea Shell
    • By Sea Shell 28th Oct 19, 7:00 AM
    • 2,844 Posts
    • 5,093 Thanks
    Sea Shell
    No-one is discussing the elephant in the room. By clearing the mortgages early I get an extra £1100 in my pocket each month from no longer paying it! Both mortgages will be clear (based on my current monthly overpayments) when I am aged 53, around 5 years from now.

    I thank you all for the excellent replies so far. I need to go and check the best savings accounts!
    Originally posted by Ryhs Moggy
    Think of it this way...

    Instead of overpaying the mortgage directly, you effectively pay YOURSELF the ££££ overpayment per month, for the 5 year period, and you squirrel that amount away in an account paying HIGHER interest, than that which you are being charged on the mortgage. At the same time, reducing your actual payments to the contractual minimum.

    You then repay the whole amount, as and when it works best for you, within the rules of the mortgage. or when it's due to end. You then have your "spare" payments to do with as you wish.

    Obviously, this ONLY works if you are disciplined enough to NOT dip into those savings for ANYTHING else, regardless of any emergency, as you have to treat that money as SPENT.

    Maybe keep a spreadsheet of the NET balance on your mortgage during this time.
    " That pound I saved yesterday, is a pound I don't have to earn tomorrow " JOB DONE!!
    This should now read "It's time to start digging up those Squirrelled Nuts"!!!
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