Mortgage overpayment help - who no term reduction?

[beatmort]

Hello, First time mortgager here. I bought a house three months ago, and having a little extra money, thought I should overpay my mortgage. I checked with the overpayment calculator of my bank and it said there'll be a term reduction of x months on my mortgage and y amount saved in interest. Great, I thought, and paid in the money.

Now I see on the app that my capital has reduced accordingly, but not the term remaining, which is the same as before. I thought surely that means that monthly payments would come down? But I contacted them and they said this:

All overpayments go towards the capital balance and this reduces the interest paid, not the mortgage term. When there is a change to the mortgage, such as the rate, the repayments are recalculated over the remaining term. A new mortgage application would be required in order to reduce the term.

The monthly payments stay the same until there is a change to the mortgage or you request us to recalculate the payments. When your rate changes on xx/xx/xx, the repayments will be recalculated based on the overpayment, if they don't change before.

The calculator is based on your mortgage rate remaining the same for the full term of the mortgage. However, your rate will expire on xx/xx/xx.

It (keeping the same monthly payments) doesn't count as an overpayment and doesn't go towards the overpayment allowance. You would be paying off more capital by keeping the payments the same compared to recalculating but we can recalculate for you.

This is all Greek to me. I don't want a new mortgage application (the OG one was stressful enough). Is there any point to me overpaying then if nothing's going to change atm? So if I had overpaid this one day before my fixed rate expired, that'll still be the same result? Please help a clueless newbie.

@beatmort Don’t worry as pp have explained this is perfectly normal.

I know you want to “see” the impact in your mortgage statements etc. that is perfectly normal. You just have to be patient and trust the system.

One of the hidden benefits of overpaying but mortgage payments staying the same is you are actually increasing your capital repayments every month.

It doesn’t matter that the term remains at 25 years, what matters is the capital repayment and when you get to £0.00 you redeem your mortgage. This will happen in much less than 25 years.

I think OP was hoping her monthly payments would come down but this doesn’t happen with fixed rate products.

It can, it did with mine.

A call to the lender (rather than not chat) might prompt them, with mine you had to call every time.

When Is your mortgage up for renewal?
we asked our mortgage advisor the same thing, as first time buyers, whether it was wise to overpay.

it was an emphatic no. Pay at the rate you’ve agreed with the lender. Put what you might overpay into savings with good interest rate and try to accrue value on your home. When you come to remortgage, put that lump cash sum towards your “down payment”, or whatever they call it, and try to get into the next 5% bracket to lower your interest rate. With your new payment plus increased value of home, your loan to value ratio should be lower.

I overpaid mine, the documents showed the full term but when I came to pay it off the overpayments had reduced the loan by 4 years, and that’s on a modest overpayment.

Why are you worrying about this only 3 months in?

Are you in a fixed deal? If so just see if you can get a reduced term next time you remortgage

We do this but in our TnCs

A payment 3x or more will reduced the monthly payment

Smaller ones are held separately and used to offset and reduce the term/interest

We can pay up to 10% per year without incurring early repayment charges

We can pay up to 90% of balance when a product comes to an end (fixed rate etc) with incurring want early repayment charges

So I would check if you can do any of the above and then save to pay the lump sums earning interest in the process

We have even took out 0% cash CC to pay sometimes up to 20k to reduced balance

We will be retiring early due to paying off mortgage early and saving thousands in interest

BUT make sure the money you save is more than the money you would have earned elsewhere if it was in a saving account or an investment account

Thank you everyone for the advice. It looks like I'm doing the right thing then and the benefit is happening in the background.

I wouldn't say I'm worrying, more checking what's the best way to handle a mortgage. I think 3 months in is perfect actually because the earlier you overpay the more years you're NOT paying interest on the capital.

No I wasn't. I wanted my monthly repayments to stay the same but the term come down. Which I realise, after reading all the posts, is happening anyway because I will finish paying off the capital early.