Soldato
I’ve not had an issue with HSBC when making over payments. I always make it reduce the term as that reduces the total interest the most.
Mortgage Rate Rises
- Thread starter glenimp617
- Start date
Exactly the same happened to me with Halifax. You should get a letter each year telling you if you are 'on track' or not. I don't think I will bother with an overpayment now for the third year. Plan is to put it in premium bonds instead. Once I get the final letter just before the 4th year is up, I will over pay 10% for that 4th year, and then another 10% at the start of the 5th year.
Will be redoing it every year anyway haha as I want this paid off ASAP. They went from 14 year to 7 year after 1 year of the mortgage being live, which is a massive decrease in the term.
Plan to have this due to finish by the end of my 5 year fix. lady on the phone said next year they'd reduce it again but cannot go below the original 5 year fix (will have 3 years left by then) so will keep doing it and reducing the term.
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Soldato
Seems faintly ridiculous to me, every lender we have been with has given us the choice between reducing the term or the monthly payment in the back of over payments the idea you have to jump through a load of hoops seems so antiquated but then that pretty much sums up the Halifax anyway (life long customer)
Apparently it's some rule that came into effect last year so have no choice.
Soldato
well it should, because 20% of one number is going to be different to 15% of another different number.
my wage goes up 5%, my mortgage goes up 20%. i'm worse off?
but my salary was 100k p/a, so 5% is £5k increase/£200 p/m after tax, and my mortgage was £600 p/m, so an increase of £120 per month. i'm better off.
this excludes other costs also rising, but talking about just mortgages, looking at it as though if you mortage goes up 10% you need a 10% increase in salary is wrong.
Soldato
£158 p/m after tax
Soldato
That's the same as mine with TSB. If I make overpayments it reduces future monthly repayment amount, the total term stays the same, but I don't have to go through any new affordability checks.
If I want it to reduce the total term with the overpayment then I have to go through a complete re-assessment/affordability checks again - even though I would be paying exactly the same amount a month just over a shorter period
utter madnessThat's the same as mine with TSB. If I make overpayments it reduces future monthly repayment amount, the total term stays the same, but I don't have to go through any new affordability checks.
If I want it to reduce the total term with the overpayment then I have to go through a complete re-assessment/affordability checks again - even though I would be paying exactly the same amount a month just over a shorter period
Loan company gotta make money somehow, they can't be having people overpaying and shortening the loan terms, that's lost interest payments for them!
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Soldato
Well yeah. As life has taught me, nothing ever seems to benefit the consumer when it comes to money.Loan company gotta make money somehow, they can't be having people overpaying and shortening the loan terms, that's lost interest payments for them!
I dont bother overpaying now. Well not directly anyway. Due to the savings interest rate being so much higher than my mortgage rate, I save the overpayments and I am just going to pay a lump sum when my fixed rate ends instead (as I'll likely be going through an affordability assessment when changing to a new fixed deal)
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Soldato
In reality the difference of changing term or payments only makes a difference if your planning on maximum additional repayments or close to.
If your not close to maxing it then you can still pay off whatever you want and it will result in exactly the same position long term.
Many mortgages now limit the overpayments to the original borrowing (typically 10%). For many the 10% is out of reach anyway so its somewhat of a paper problem.
If your in the realms of being able to pay off the 10% then having your repayments reduced does limit your overall maximum payment per year, but again unless you talking long term the impact is somewhat limited.
Eg if you pay 10% overpayment from year 1 you will wipe out the mortgage around year 7. Thats pretty massive.
The impact of it affecting your repayments is only a few months so whilst annoying no massive amount, and if you for example took a 5 year fixed you can simply save the extra and smash the mortgage when that deal expires.
You may actually find remortgaging slightly tricky at that point depending on lender, but you will for sure find a good deal as by then you would be probably talking a LTV of like 20-30% and thats about as safe an investment as you can get.
And at that point things like trackers are really good bets (assuming your ability to repay funds remains the same)
If your not close to maxing it then you can still pay off whatever you want and it will result in exactly the same position long term.
Many mortgages now limit the overpayments to the original borrowing (typically 10%). For many the 10% is out of reach anyway so its somewhat of a paper problem.
If your in the realms of being able to pay off the 10% then having your repayments reduced does limit your overall maximum payment per year, but again unless you talking long term the impact is somewhat limited.
Eg if you pay 10% overpayment from year 1 you will wipe out the mortgage around year 7. Thats pretty massive.
The impact of it affecting your repayments is only a few months so whilst annoying no massive amount, and if you for example took a 5 year fixed you can simply save the extra and smash the mortgage when that deal expires.
You may actually find remortgaging slightly tricky at that point depending on lender, but you will for sure find a good deal as by then you would be probably talking a LTV of like 20-30% and thats about as safe an investment as you can get.
And at that point things like trackers are really good bets (assuming your ability to repay funds remains the same)
Associate
First thing to state is that I am not good at maths.
I currently owe £76K of an original mortgage loan of £85K. We took the loan out 18 months ago as a 13 year fix at 3.29% giving a payment of £670/month. I have been told that as long as I don't make over-payments in excess of £5K over the remaining life of the mortgage (11.5 years) I will not incur extra charges.
I want to overpay. I am unsure if it would be more beneficial to pay an amount extra each month or as an annual chunk. I do understand that interest is accrued daily. Please advise.
I currently owe £76K of an original mortgage loan of £85K. We took the loan out 18 months ago as a 13 year fix at 3.29% giving a payment of £670/month. I have been told that as long as I don't make over-payments in excess of £5K over the remaining life of the mortgage (11.5 years) I will not incur extra charges.
I want to overpay. I am unsure if it would be more beneficial to pay an amount extra each month or as an annual chunk. I do understand that interest is accrued daily. Please advise.
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Soldato
- Joined
- 21 Sep 2020
- Posts
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Who’s your provider?
It’s normally 10% of the remaining balance each year.
Who told you it was £5k over the lifetime. You’re going to have to check your mortgage and see exactly what it says.
It’s normally 10% of the remaining balance each year.
Who told you it was £5k over the lifetime. You’re going to have to check your mortgage and see exactly what it says.
Why do you want to overpay?
Current savings rates are higher than that as are mortgages, it doesn't make much sense to overpay in most cases.
w.r.t your question it would be better to overpay at the end of the year as you'll also accrue interest on your savings... but better than that would be to just save for 13 years (or for as long as savings rates are higher) instead.
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Associate
I rang the provider this morning. Kensington (as wanted a 13 year fix).
Agreed, definitely worth checking the fine print of your mortgage. Every provider I've seen / used has been 10% of the outstanding balance as of the start of the year before starting to incur financial penalties. I always do my calculations at the very end of the previous year and work out what we can overpay without hitting that 10% margin and do that on a monthly basis. Like you say, depending on how your interest as calculated, it can make sense to do it on a monthly basis and just write it off as part of the mortgage amount!
Many people just can't or don't want to look at it that way I guess.
And just like the tangible simple feeling of overpaying.
Just have to look at how many people get muddled up and contest "put your cash against the highest rate" be that mortgage or savings.
Obviously special circumstances caveat this
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If it really is £5k over the lifetime then paying it as a lump sum now will have the largest impact over the term. But its relatively small and wont have much impact overall, it saves you about £900 in interest over the remaining 11.5 years if my sums are right.
Soldato
It's usually 10% of the balance at the beginning of the financial year. That's how ours is. I have 19k left to pay, so I can overpay 1.9k this year without incurring ERC of 3%.
People being stung by big jumps in interest rates on their mortgages probably made overpaying more comforting! Or personal savings allowance and getting taxed on interest given that it is much more likely now that savings rates are more appealing (assuming outside of an appropriate tax wrapper)!
Seeing outstanding payment duration on the mortgage drop from 20+ years to much less is always nice too