Overpaying Mortgage

Indeed it is, but a large proportion of mortgages are on them, at least for a time.
This is in a thread where the OP took out a 30 year mortgage to keep payments down, with the intention of overpaying....
Still not getting that.
 
Jez said:
You can on loads of products here too, it tends to be the fixed and discounted promotional rates which have these overpayment limit clauses. :)

Is 4% considered an OK rate over there by the way? That would be a huge rate for the UK :eek:
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I'm pretty sure in the US it is a legal requirement that you can overpay a mortgage without incurring a fee. It isn't something special, every single mortgage lets you do that.

4% was considered exceptionally low. We secured the loan when rates were at their lowest, we had a 50% LTV, exceptional; credit rating and 2 professional salaries.

I could probably get about 3.6% now that rates have lowered even further but this now worth the expense of moving.
 
Ah, here they can stipulate what they like. Most allow overpayments of any amount but discount offers etc never do, it's all very clear in the paperwork though.

I am surprised rates are so comparatively high in such a large and usually competitive country as the US, we have rates such as 0.99% available at 60% LTV, usually we are the ones getting ripped off! :)
 
Jez said:
Ah, here they can stipulate what they like. Most allow overpayments of any amount but discount offers etc never do, it's all very clear in the paperwork though.

I am surprised rates are so comparatively high in such a large and usually competitive country, we have rates such as 0.99% available at 60% LTV! :)
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They often pay for current accounts too, I mean transaction fees, lots of little incremental charges etc.
Our banks only got wind of that concept recently, and probably will push for the RBS Santander style pay up monthly or else type accounts eventually.

When it is built around making money, if everyone is doing the same, then its easy to inflate rates.
 
The fact you have got yourself in this situation just proves you need some proper financial advice, OP.

Paying for some advice would have been much cheaper in the long run, as you could have stated your financial goals and planned accordingly. If you had fixed or gone on a tracker for a much longer term, you would not be in the situation where you have to pay yourself more to go through affordability calculations again and end up paying more tax. You could also have ensured you got a mortgage with a more lenient early repayment policy (there are many).
 
Jez said:
Ah, here they can stipulate what they like. Most allow overpayments of any amount but discount offers etc never do, it's all very clear in the paperwork though.

I am surprised rates are so comparatively high in such a large and usually competitive country as the US, we have rates such as 0.99% available at 60% LTV, usually we are the ones getting ripped off! :)
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Interest rates seem screwed up in the US.
Just did a search for 505 LTV with excellent credit rating, standard 30y term and they range form 3.2-4%.

I get 0.05% interest in my savings account. Our joint savings account get 0.1% but requires a monthly transfer That isn't a typo or misplaced decimal, 1 tenth or 1 20th of a percent.

But then this is a country where it is is common to pay like $20 a month even just to own a bank account, you ave to pay $30 to get a set of check books (and everything is paid by check). If you loose a card you might have to pay for its replacement. And don't even ask about withdrawing money from an ATM outwith your own.

Plus everything is just backwards. Beyond requiring checks to pay for everything, they only just introduced chip & pin yet most shops aren't even set up for it.



On the good side though is I can walk into a bank 5 minutes after closing on a Friday evening and the staff are happy to serve me, and a warm and welcoming.
 
D.P. said:
I get 0.05% interest in my savings account. Our joint savings account get 0.1% but requires a monthly transfer That isn't a typo or misplaced decimal, 1 tenth or 1 20th of a percent.
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Sounds like you need to open a better savings account. Goldman Sachs have an online savings account that pays 1.05% APY which is an awful lot better than you're getting at the moment.

Also if you're paying banking fees you're doing it wrong. Loads of banks reimburse ATM fees and give you free checks.
 
Hikari Kisugi said:
Indeed it is, but a large proportion of mortgages are on them, at least for a time.
This is in a thread where the OP took out a 30 year mortgage to keep payments down, with the intention of overpaying....
Still not getting that.
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Flexibility? You are not obligated to make overpayments so if you have a few lean months you can stop the overpayment portion temporarily if needed and restart when funds dictate.
 
OllyM said:
Remember most mortgages in the US are 15 or 30 year fixed rates.

Having said that 15 year fixes are hovering around 2.75% at the moment and 30 year fixes are at about 3.2%.
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Ouch, seems a bit backwards in many ways.

I guess our system here is a lot more similar to the UK than US system. We're currently on a 2 year term at around 1.5% above the base rate (0.5% at the moment) and can lock in to a fixed rate when we see fit. Both young professionals, but only one salary at the moment.

And when D.P. says two professional salaries and easy he either means they are both on very high salaries (not average/just above average) or are in a cheap area (or both). Buying in San Fransisco or New York is not "easy" for two professionals. It's pretty much the same as anywhere else (UK, Canada etc) where house prices range from **** all to OMG you have my ***** in a clamp depending on location. We could afford a nice 4 bed in a nice area on the east coast (with no mortgage), a reasonable house in a reasonable area where we currently live (with a 50% mortgage) or a 1 bedroom studio flat in somewhere like Downtown Vancouver or Toronto (with a large mortgage).:p I think a small, needing modernisation townhouse in San Fran (for example) is in the $1m US range, but you could probably buy a nice 4-5 bedroom house in a small town away from the expensive cities for $250k.
 
Hikari Kisugi said:
Somewhat amusing you think it sucks you have to prove your income, when you are not taking it as income to avoid tax in the first place.
They can hardly loan you money against a value you are not earning, nor paying tax against.


As for you overpayments all the time while on the standard variable, then you are correct, at an equivalent rate they would be charging you 5% but as the capital is eternally dropping, it wouldn't be a full equivalent of the 5%.
To calculate how much overpayment you would have to make, to make it equivalent to a fixed rate at a lower %, then we'd need the full figures for amount loaned, the LTV and the current repayment.

What I do not quite understand is if you pan to make these overpayments regularly, then why not cut the mortgage term, and have the amount coming out monthly, so it will end when you plan to end the mortgage?
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I'm not avoiding tax?

Why would I pay myself £50,000 when I can live comfortably on £30,000? I'd rather keep it in my business and build a nice profit for the business. This is how a business works.

Profit = good business.

I'd rather cut the monthly amount so that I can for instance:

Save £200 per month in monthly payments giving me another £2400 over the course of a year to then whack down as an overpayment again, bringing the monthly payment down again to rinse, lather and repeat. Makes the most sense to me to be honest and in turn, I may only have £10,000 left to pay over 30 years, which is when I'd simply put £10,000 down and finish the mortgage completely.

Also, you never know what is around the corner, so I'd rather sit comfortably than have a larger monthly payment and not having the ability to pay it. Flexibility is key.

Andy
 
Aruffell said:
I'm not avoiding tax?

Why would I pay myself £50,000 when I can live comfortably on £30,000? I'd rather keep it in my business and build a nice profit for the business. This is how a business works.

Profit = good business.

I'd rather cut the monthly amount so that I can for instance:

Save £200 per month in monthly payments giving me another £2400 over the course of a year to then whack down as an overpayment again, bringing the monthly payment down again to rinse, lather and repeat. Makes the most sense to me to be honest and in turn, I may only have £10,000 left to pay over 30 years, which is when I'd simply put £10,000 down and finish the mortgage completely.

Also, you never know what is around the corner, so I'd rather sit comfortably than have a larger monthly payment and not having the ability to pay it. Flexibility is key.

Andy
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Stop talking rubbish.

"Took a 30 year mortgage out to get lower payments as I was planning to do overpayments anyway to reduce the term. The plan is to be mortgage free in 14 years (I'll be 42) which I believe is achievable."

You took out a 30 year mortgage yet you believe you can pay it off in 14 years? Why?

Why not a 16-24 year mortgage? Still gives you flexibility. On a 24 year mortgage you would have less interest because you're paying more towards the debt quicker. Better still a 19-year mortgage still 5 years more than what you think it will take which is plenty flexibility.

"You can repay this mortgage early. If you repay part or all of the loan an early repayment charge will be payable at the time of

repayment, calculated as a percentage of the amount of the loan repaid. The percentages are set out in the table below along

with cash examples:

3% of the amount repaid"

Your being charged 3% on ANY overpayments within the deal period although I don't think that is right, so you have probably missed out some vital info or are with a crappy lender. Usually you can overpay 10% of the original loan every year without any fees, anything above 10% occurs a fee is usually the type of deal people are offered.

So you intend to make such a large amount of overpayments on a 30 year term that it's brought down to a 14 year term, yet you picked this product? Doesn't seem very flexible or sensible to me.

"Ok, did the simple thing and called them. There are 3% fees, so they agreed I'd be best to slap down some money once the product ended.

Due to me being self employed, I had to go with a non-highstreet lender and they've just said, they currently have no retention products available, but hopefully when my 2 year fix ends in April 2018, there should be something for me. If not, I go onto the much higher variable rate.

Obviously, I'd rather not do this as it means I'll be paying a bucket load more interest so would probably look to jump ship.

The only issue with that is that I take a modest yearly salary including dividends, but to get the mortgage, I increased my dividend to get the mortgage that I needed. If I jumped ship to another mortgage provider, am I right in thinking that I'd have to increase my dividends again for the next 2 years leading up to it and to prove my income all over again?

For instance:

£30,000 a year but to get the mortgage I had to increase my dividend meaning that for that year I had to pay myself £50,000 for the year.

I've now dropped back down to £30,000 a year again."

Yes your avoiding tax most likely more than one way too. By taking dividends instead of PAYE only salary. You also had to do some fiddling in order to get this mortgage. So you had to bump your salary by £20K in order to get a 30 year mortgage. Yet now that you have reduced your salary by £20K you reckon you can pay it off 16 years early. Please explain how that is possible without "cash in hand" therefore avoiding tax. I'd like to see the maths behind this explanation too. Also nobody would have to show a £50K salary in order to get a £10K mortgage over 30 years which is why the post quoted at the top is complete rubbish.

"If I jump ship when I'm due to change products, Will I have to pay myself a larger dividend again to bring my income up to show affordability again, as I'm not overly keen doing that due to dividend tax rates changing etc... and I live comfortably on the smaller amount, and don't want to pay myself another £20,000 just to prove my affordability."

This post proves that you prefer avoiding to pay tax.

"Out of interest, is there anyway to work out overpayments.

Say for instance, the variable rate is 5% at the time, but being on a variable, I can do overpayments whenever I like, I'd never actually be paying 5% of the total would I?"

Interest is charged daily. That means every day they apply 5% APR. Basically 5% divided by 365 (days in the year) multiplied by your outstanding amount on that day. They do that every day of the year. So yes 5% APR is on the total. It's beginning to become very clear why you took out a 30 year mortgage now as you have done what looks like zero research into how a mortgage works before taking one out.

"Yeah if I stay with the company, they won't do any checks, but moving companies will."

That would be obvious to anyone. If company A loaned me £200K and then I decided to jump to company B. How would company B know I can afford to pay back a £200K loan? Would they just accept company A had done their job right? Huge risk to take with £200K on the line.

"I'm not avoiding tax?

Why would I pay myself £50,000 when I can live comfortably on £30,000? I'd rather keep it in my business and build a nice profit for the business."

Well how can you comfortably live on £30K when you needed £50K to take out a 30 year mortgage with a crappy lender? How much cash in hand do you take home? ;)

"I'd rather cut the monthly amount so that I can for instance:

Save £200 per month in monthly payments giving me another £2400 over the course of a year to then whack down as an overpayment"

This is the worst way to do it unless you get a higher interest rate on that money compared to what your being charged on your mortgage. But with all the information you have provided thus far. The fact your with a crap lender I'm guessing your rate must be quite high. So unless your getting > whatever your mortgage rate is on the money your not paying in monthly your losing money by taking out this 30 year deal.
 
Looking at what has been posted. It looks like a 2 year product.

So just overpay or jump ship after 30/4/2018.

Simple. I don't understand how people don't understand the basics of mortgages.

There should also be a separate definition of what "early repayment", "partial early repayment" means and what an "overpayment" means. They all mean different things. Although Section 11 suggests they would be liable to the same charge anyway.
 
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Psycho Sonny said:
Snip.
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So much seems wrong in that wall of text, just what???:confused:

Are you honestly advising that it's best to leave money (profit) in your business account as you don't want to pay dividend tax, which is 7.5% on the amounts your talking about? Baffled.
 
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