Mortgage Overpayment Question

MichaelAwkward

MichaelAwkward

MichaelAwkward

Soldato
Joined
22 Jul 2014
Posts
3,931
Location
Oxon
I have a mortgage with Halifax which I'm currently overpaying by just under the maximum 10% allowed (rounded down by a few quid).

It says that the 10% is based on the amount owing at the 1st of January in the calender year. This is the first year of the mortgage, and our direct debit is taken on the 1st of every month.

Am I right in thinking that I need to adjust my overpayment for 1st January 2019 so that it's 10% of the balance as at 31st December 2018?

For arguments sake, I predict the balance at the end of December to be £132,560 which is after our December D/D plus the daily interest for December (2.54%). This is what will be owing on 1st of January before our D/D goes out. So my overpayment for next year can be up to £13,256 (£1,100 a month) extra?
 
Not yet, I thought it might be a commonly asked question that someone here would know the answer to.

i.e. is it the balance at the beginning of 1st January, or at the end of the day? In which case we'd be best off adjusting the direct debit date so we can overpay by a larger amount, although that would impact the daily interest charged too.
 
I would suspect these sorts of options are peculiar to each lender as they all will want to maximise their profit rather than help you so the rules I suspect will be specific. What makes sense to you or me is a whole world away from what financiers seem to consider a good deal. :(
Andi.
 
From the wording you have given yes you will have to reduce it as the over payment percentage is calculated in the first of January every year, this not unusual ours is the same. Similarly we are able to offset a certain percentage against a savings account but I must msnually reduce this amount each month as the balance decreases.
 
I always phone them, get them to calculate what 10% is, confirm that paying this amount will not result in any charges then pay over the phone.

Doing it this way puts the responsibility onto them, not me.
 
Firestar_3x said:
I always phone them, get them to calculate what 10% is, confirm that paying this amount will not result in any charges then pay over the phone.

Doing it this way puts the responsibility onto them, not me.
Click to expand...
Likewise I always get them to tell me what the monthly payment should be to keep me under the limit even though it is a simple thing to work out much better to let someone else own that risk!
 
We are with Halifax and did this at the end of last year... We made an overpayment at the end of the year of 10% based on the balance as of January 2017 then made a 10% overpayment a few days later based on the balance at Jan 2018
 
I would expect it to be the balance brought forwards from the previous year. So your closing balance as of 31/12/xxxx
Thats your balance at the start of the year, a payment made on 1/1/xxxx should be outside the balance for these purposes I would say.

Only BS can confirm, but I would be very surprised if its not the above
 
As per your post I believe your thinking is correct and you will need to adjust your payment early in 2019 so that you don't hit the limit. You wont have to do it ahead of time you can just adjust it once you know what your outstanding balance is when you get to the 1st Jan 2019. Ultimately a quick phone call to your lender to ask the question wont hurt and you will probably be best to call them anyway when you want to change the DD amount.
 
The Craig said:
Citation needed! What risk free methods are there, for say 10k?
Click to expand...

Nothing is 100% risk free. He could be hit by a bus tomorrow and wish he had spent that £10K on a hot tub instead last year. Or his house could burn to the ground or be swallowed by a sinkhole and his insurance company goes bust due to another recession before he's paid out. So overpaying by £10K is not 100% risk free, it has risks attached to it. Ploughing all his eggs into one basket so to speak in his house isn't exactly risk free.

Peer to peer lending should see a pretty reliable 5% return. If he decides to push into other avenues the more risk the more % return he will make.
 
Psycho Sonny said:
Nothing is 100% risk free. He could be hit by a bus tomorrow and wish he had spent that £10K on a hot tub instead last year. Or his house could burn to the ground or be swallowed by a sinkhole and his insurance company goes bust due to another recession before he's paid out. So overpaying by £10K is not 100% risk free, it has risks attached to it. Ploughing all his eggs into one basket so to speak in his house isn't exactly risk free.

Peer to peer lending should see a pretty reliable 5% return. If he decides to push into other avenues the more risk the more % return he will make.
Click to expand...

I think it's fair to say that money in a bank or mortgage is relatively risk free compared to peer to peer lending. :p.

Obviously people can weigh up the amount of risk they want to put on cash
 
The Craig said:
I think it's fair to say that money in a bank or mortgage is relatively risk free compared to peer to peer lending. :p.

Obviously people can weigh up the amount of risk they want to put on cash
Click to expand...

peer to peer lending. background checks are still carried out as well as income and affordability checks.

it's not as if you are giving away £10K to a random guy down the pub. Also they ensure no more than £10 is loaned out to a single person to spread the risk.

Basically anyone who borrows money from ZOPA is actually borrowing a little from lots of different people. Even if you only borrow £400.
 
The Craig said:
Citation needed! What risk free methods are there, for say 10k?
Click to expand...
Pretty sure the only risk free savings you can put your money in to that will return more value for money is 5 year fixed rate bonds. There are a few out there for 2.5% to 3%. If you want to take risk you can go higher.

Overall the difference between savings interest earned, and savings made by reducing capital are very small right now unless you want to take risk. I am evaluating a number of options but think I am going to settle for no risk overpayments.
 
Syla5 said:
Pretty sure the only risk free savings you can put your money in to that will return more value for money is 5 year fixed rate bonds. There are a few out there for 2.5% to 3%. If you want to take risk you can go higher.

Overall the difference between savings interest earned, and savings made by reducing capital are very small right now unless you want to take risk. I am evaluating a number of options but think I am going to settle for no risk overpayments.
Click to expand...

Also assuming that situation will stay the same is a risk. Everyone will take a differing view on interest rates over the term of most peoples typical mortgage.

IF, interest rates rise significantly it can get harder to get a post tax rate that remotely approaches borrowing rates on mortgages. Thats the historical position of course.
Headline numbers look fine, but post tax is the important one.
 
Thanks for the replies everyone. I rang and Halifax confirmed what I thought.

I've done the sums to work out exactly how much either option is going to cost and overpaying at our current amount, 10% of the starting balance, for the full 5 years rather than adjusting it each year, will see us clear the mortgage by August 2025. The total fees for keeping the overpayment the same despite the declining balance every year, works out at £414.38 in total so it's not worth bothering to keep it under this as it just means it takes longer to pay off and costs more in interest than those fees anyway.

This will save us £15,850.41 in interest over the 8 years, and £76,220.95 compared to if we only made the standard repayments for the full 30 years (and the variable interest rate remained at 3.99% - obviously we'd switch to another fixed rate mortgage if we didn't plan to clear it sooner rather than later but I'm sure plenty of people out there never bother). After the 5 years there's no fee for overpaying so we may clear it earlier with savings or bonus.

It's been quite interesting to actually see how much it all works out to be. Essentially the cost of borrowing will work out at £17,741.05 if we stick to this plan. Both of us have a few hundred a month after this and bills to save or spend so it's not like we're living on the limit just to clear it, and I'm clearing some other debts at the same time too. It makes me glad that we didn't take out a mortgage at the very maximum of what we could borrow.

RE: Overpaying vs savings/investments. I get what you're saying but I think in our position this is a sensible thing to do. We both make the maximum contributions to our pensions (though mine is slightly better than my partners as my employer more than doubles what I put in where as they just get a matched amount) and we both have regular savings accounts paying 5%, which we'll move into more suitable accounts at the end of the year, and open new regular savings. We used all of our previous savings on the deposit, so we've had to start a fresh.
 
Last edited:
I am not sure why you would rather pay £414 in charges in stead of just make a 10 minute phone call once a year. The effective cost on your time is £311 per hour.

I just changed my direct debit amount on my mortgage and I don't even think it took me 10 minutes.
 
You must log in or register to reply here.
Back
Top Bottom