Mortgage overpayment - Seeking advice :)

[cravethatcoin]

Hello everyone,

I've seen some great discussion on mortgages on the forum so I figured I would ask for some advice from fellow members.

I have a mortgage, fixed term for 5 years. Currently in year two with a balance of £106,000, my payment is £399/month (27 year term)

Every year I am able to make 1 lump sum payment of £10,000 which falls nicely within the maximum of 10% overpayment I can make per year.

I called NatWest to make the overpayment. They said that when I make an overpayment it reduces the monthly payment by default rather than the term. I know why they do this from their side. From my side I want to keep my £399 payment and reduce my term to reflect my new overpayment. I used their calculators and the result is attached.

So around a 3 year term reduction based on the £10000 overpayment. But when I asked NatWest what my new term would be they said they couldn't tell me. They said it's up to me to pick a term. It's confused me in the sense that surely there is some math involved in the new reduced balance of £96,000 with the same £399/month is going to be paid earlier than if the balance was still £106,000. But NatWest cannot come up with the new term and stick with saying that it's up to me to come up with the term.

Today I made the overpayment (they said point blank that the payment must be made prior to the new term being agreed which in my eyes is insane). My payment is reduced to £360 or so. I have to speak to a mortgage advisor on Friday to come up with the new term (along with show my business accounts etc even though my risk is reduced..) and bring my payment back to £399. Based on their calculator I should see the term reduced from 27 years to about 24. But based on NatWest not being able to give me a term what should I expect from this discussion?

I would love to hear from anyone who has experience with this or has advice, it would be greatly appreciated.

Thanks.

[Guybrush]

Haha scumbags natwest, my mortgage is with them and I do the over payment monthly.  Because you have paid in a lump sum this way they will "recalculate" the mortgage and reduce the monthly payment.

If you overpay monthly (Increase what you pay) they will always keep the min payment the same.  I overpay every month and actually wanted them to "recalculate" and I would then up my standing order by the reduction amount.  They wouldn't do it unless I stop over paying and manually make the over payment every month.

Scumbags, every trick possible to make overpaying as awkward as possible.

[Norskgeld]

Guess this is one reason why "Mort gage" means "Death Grip" 💀

[Avrocarr]

It’s not in the interest of any lender to reduce the term of the mortgage as that means you’ll stop paying it earlier and hence stop paying them interest. As long as you’re paying off some of the mortgage then overall your debt is coming down, irrespective of the mortgage term as if you keep paying it down it will eventually get to zero. When your fixed rate comes to an end in three years you can re-mortgage and reduce the term then, in the meantime the term doesn’t matter.

 

[Kookaburracollector]

@cravethatcoin hi..you just got very lucky.I worked in a large bank (mortgage dept) doing exactly this type of stuff..I reduced my mortgage term twice whilst on a fixed a rate and knocked 8 years off my mortgage term. I had an excel spreadsheet which calculated revised loan terms after lump sum reductions had been made.

My advice..be firm..ask them for what you want..it’s a simple  repayment spreadsheet calculation for them..it takes one minute. The way around making lump sum reductions whilst on a fixed rate ( without incurring early repayment charges) is to reduce your loan term, it inflates the standard monthly repayment. I’m sure if you went on the internet you could find a calculator to help you.

Basically when Natwest said they couldn’t tell you what the new term would be they lied..

pm me if you hit a brick wall.

[MancunianStacker]

It doesn’t really matter because you can just move away from them at the end of the 5th year, the balance would have reduced by the same amount and then you can pick a new lender, offering the best rate and just get them to calculate the new term on £x monthly budget at the same best interest rate deal you found. The fixed rate and term is set at the point you took out the mortgage so they will want to keep that as agreed. What you do at the end of the term is up to you.

[cravethatcoin]

Wow thanks for the support everyone I appreciate it.

3 hours ago, Guybrush said:

Haha scumbags natwest, my mortgage is with them and I do the over payment monthly.  Because you have paid in a lump sum this way they will "recalculate" the mortgage and reduce the monthly payment.

If you overpay monthly (Increase what you pay) they will always keep the min payment the same.  I overpay every month and actually wanted them to "recalculate" and I would then up my standing order by the reduction amount.  They wouldn't do it unless I stop over paying and manually make the over payment every month.

Scumbags, every trick possible to make overpaying as awkward as possible.

Yep banks like nothing more than to keep people in debt as long as possible. They want interest not early debt repayment.

I did a lot of research on this prior and knew that they would default to reducing the monthly payment to keep the same term but I had no idea just the extent they would go to in order to avoid reducing the term.

2 hours ago, Norskgeld said:

Guess this is one reason why "Mort gage" means "Death Grip" 💀

Yep nothing nice about having a mortgage. Unfortunately I live in the south and buying a house cash is impossible for most.

2 hours ago, Avrocarr said:

It’s not in the interest of any lender to reduce the term of the mortgage as that means you’ll stop paying it earlier and hence stop paying them interest. As long as you’re paying off some of the mortgage then overall your debt is coming down, irrespective of the mortgage term as if you keep paying it down it will eventually get to zero. When your fixed rate comes to an end in three years you can re-mortgage and reduce the term then, in the meantime the term doesn’t matter.

 

Indeed, I was aware that by default they would reduce my monthly payment and keep the term by default. I fail to see how the term doesn't make a difference, I would rather keep my exising £399 payment and reduce my term and effectively pay off the mortgage sooner. With the reduced monthly amount I still have the payments to make each month for 27 years. Unlucky for NatWest I won't be stuck with a mortgage for long.

28 minutes ago, Kookaburracollector said:

@cravethatcoin hi..you just got very lucky.I worked in a large bank (mortgage dept) doing exactly this type of stuff..I reduced my mortgage term twice whilst on a fixed a rate and knocked 8 years off my mortgage term. I had an excel spreadsheet which calculated revised loan terms after lump sum reductions had been made.

My advice..be firm..ask them for what you want..it’s a simple  repayment spreadsheet calculation for them..it takes one minute. The way around making lump sum reductions whilst on a fixed rate ( without incurring early repayment charges) is to reduce your loan term, it inflates the standard monthly repayment. I’m sure if you went on the internet you could find a calculator to help you.

Basically when Natwest said they couldn’t tell you what the new term would be they lied..

pm me if you hit a brick wall.

Thanks a lot I appretiate it. I will ensure that I get at least 3 years knocked off the term from this over payment (as per their own calculator). If they refuse to do it I'll take action to expose what they are doing (I know it's legal and all banks are the same but I'll be sure to make an example of how bad it is for the borrower).

13 minutes ago, MancunianStacker said:

It doesn’t really matter because you can just move away from them at the end of the 5th year, the balance would have reduced by the same amount and then you can pick a new lender, offering the best rate and just get them to calculate the new term on £x monthly budget at the same best interest rate deal you found. The fixed rate and term is set at the point you took out the mortgage so they will want to keep that as agreed. What you do at the end of the term is up to you.

That is true. My plan has always been to overpay 10% per year (while reducing the term to reflect and keep my same monthly payment) then on year 5 once my fixed rate ends I'll see what my balance is at that point and pay off what I can while there are no fees then get the best deal I can. By that point I'd be going for more like a 10 year mortgage.

[Groundup]

 

I was told to make sure the overpayment was applied to the balance and not just the interest.

 

[MancunianStacker]

I’ve just remortgages into a 10 year fixed deal. Simply because I can afford that rate today and should be able to in 8,9,10 years too! It wasn’t the cheapest. Idid that because interest rates are at their historical lowest in the UK. The average BOE interest rate since 1975 is astound 8%, which makes my 10 year mortgage rate of 2.75% a bargain.

An offset mortgage would probably suit you quite well. A few of my clients including some self employed with big cash reserves use them. It comes with a connected savings account which offsets any interest you pay on your property. So you can still access the savings if required (emergency fund or big gold purchase lol) and you can tell them at outset if you want to set it to reduce the term or reduce the monthly payment instead. There aren’t many offsets left out there so only a couple to choose from so few people remortgage away from their chosen company once done but they usually offer a product lower than the SVR after the first deal ends!

 

[vand]

yes, The assumption is that the length of the mortgage doesn't change, so following a lumpsum payment they will recalculate the mortgage automatically and so future payments will be lower.  You need to arrange to keep your monthly payment at the same fixed amount each month.

[cravethatcoin]

Thanks everyone.

I will arrange to keep my monthly payment the same on Friday.

Will let you all know how I get on.

[TopHatsTales]

When I was on a fixed, iirc you could overpay and reduce the monthly, reduce the term or have it off the capital.

Choose to take it off the capital. If you can pay (and overpay) then why reduce the monthly. Reducing the term is ok, but you are committing. 

This was with nationwide.

Having some money and a cheap mortgage seemed ok, but following a thread I started here the other week, I have been paying off the mortgage. Due to the low balance, it is on an svr/bmr, so no overpayment limits.

Paid half off in the last week, will contact them for a settlement figure next week.

Then move and start all over again...

[4Nines7Hills]

When over paying always  pay straight off the principle and  do not reduce the term ever , because if you ever have stop stop overpaying you will have to renegotiate a mortgage.).

Some say that over paying mortgage is a waste as you can get better ROI elsewhere However lowering the LTV and particularly less than 65% opens up far better deals 

[cravethatcoin]

8 minutes ago, 4Nines7Hills said:

When over paying always  pay straight off the principle and  do not reduce the term ever , because if you ever have stop stop overpaying you will have to renegotiate a mortgage.).

Some say that over paying mortgage is a waste as you can get better ROI elsewhere However lowering the LTV and particularly less than 65% opens up far better deals 

Can you explain how this works? One thing I don't understand as with my initial post is paying off the principal should automatically result in the term reduced assuming the mortgage payment remains the same.

My LTV is currently 51%, hopefully I can reach 65% in a couple of years.

[4Nines7Hills]

When I ring up and pay they always ask do you want to reduce the monthly payments or  reduce the term. They recalculate it and give me a new figure but I say don't change the DD

[cravethatcoin]

46 minutes ago, 4Nines7Hills said:

When I ring up and pay they always ask do you want to reduce the monthly payments or  reduce the term. They recalculate it and give me a new figure but I say don't change the DD

That's exactly what I tried to do but they refuse to change the term based on maths. Instead I have to speak to a advisor and come up with my own term.... So it looks like this is NatWest being a joke.

I will let everyone know how the phone call goes. I won't settle for less than a 3 year term reduction going off their own calculator. 

[mdp2505]

A lot of good points made. 

We found a similar problem with the opacity of Halifax's terms when it came to overpayments. While we were grateful to be lent the money to buy our home, we didn't appreciate the vagueness. 

Are you ble to make monthly overpayments rather than saving up the lump sum? Or is it from an annual bonus? 

Most mortgages calculate interest daily so you are generally better off to pay down the balance asap rather than annually. It looks like monthly overpayments could get you mortgage free faster than annual  payments https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

[cravethatcoin]

11 hours ago, mdp2505 said:

A lot of good points made. 

We found a similar problem with the opacity of Halifax's terms when it came to overpayments. While we were grateful to be lent the money to buy our home, we didn't appreciate the vagueness. 

Are you ble to make monthly overpayments rather than saving up the lump sum? Or is it from an annual bonus? 

Most mortgages calculate interest daily so you are generally better off to pay down the balance asap rather than annually. It looks like monthly overpayments could get you mortgage free faster than annual  payments https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Oh yes, it's no wonder banks have such a bad reputation. It would make sense if they were 100% private companies but NatWest was bailed out and should be thankful for someone overpaying and reducing their risk. But of course it's about money and ensuring they make as much interest as possible.

I technically could overpay but I like to have the low mortgage payment month on month to make life easy. Then every year I get a dividend from my business. I suppose I could use that to make overpayments month on month but I do expect that NatWest will reduce my term come Friday. They don't really have a choice.

[vand]

I used this free Excel spreadsheet to work out my overpayments.

https://www.vertex42.com/ExcelTemplates/loan-amortization-schedule.html

 

 

[cravethatcoin]

A quick update.

NatWest are putting up as many barriers as possible prior to reducing the term.

Even though I'm paying off 10% of my mortgage and reducing my risk to them as a borrower they are treating this as if I am borrowing more money or increasing my mortgage payment.

They want:

- 2 years accounts for my company

- personal tax returns showing dividend payments

Once I provide these documents they expect a 30 minute to 1 hour 30 phone call... I have no idea what they expect to talk about for that long to simply reduce my term based on my overpayment.

[vand]

You may be coming to grief because you are effectively asking for a remortgage each time you change the term.

 

When I set up my overpayments I made additional lump sum contributions at semi-regular intervals.

Initially they would recalculate the payment each time (ie keep the term the same) so I was paying less each month as the capital balance came down ahead of the term schedule.

I simply asked them to fix the payment at the same amount each month and they happily did this. This was not reducing the term, so I had a fixed monthly payment, and then I would make additional discretionary monthly payments of varying sizes of top of that.  Effectively by keeping the term the same and the standard payment the same, every time I was making an additional discretionary overpayment, it effectively meant the fixed standard payment become an overpayment too.

This was with Virgin mortgages. 

 

 

[cravethatcoin]

11 hours ago, vand said:

You may be coming to grief because you are effectively asking for a remortgage each time you change the term.

 

When I set up my overpayments I made additional lump sum contributions at semi-regular intervals.

Initially they would recalculate the payment each time (ie keep the term the same) so I was paying less each month as the capital balance came down ahead of the term schedule.

I simply asked them to fix the payment at the same amount each month and they happily did this. This was not reducing the term, so I had a fixed monthly payment, and then I would make additional discretionary monthly payments of varying sizes of top of that.  Effectively by keeping the term the same and the standard payment the same, every time I was making an additional discretionary overpayment, it effectively meant the fixed standard payment become an overpayment too.

This was with Virgin mortgages. 

 

 

That's also the route I'm going but natrually if you keep your mortgage payment the same at the original term, overpayments you make will reduce your term as your mortgage balance is reduced.

It doesn't make any sense that mathmatically the term is going to be reduced but mortgage companies will not officially reduce it. I do understand that they don't want mortgage terms reduced but if they allow an overpayment with the same mortgage payment the term of course is going to be lower.

[vand]

Are you sure you're not over-complicating this...?

You can only pay off a capped maximum amount of the capital per year during the 5 year term of your fixed rate. Your overarching aim should just be to pay off that amount, whether you do it all in one lump sump or in monthly additional over-payments.

Once you have done so this will bring your interest payments down to reflect the reduced loan amount. 

Personally I wouldn't worry too much about them bringing the regular payment down following an overpayment if that's what they're insistent upon. So long as you are maxing out the 10% overpayment each year then it won't make much difference to your outstanding balance at the end of the fixed term.

 

There is also a strong argument that you could be putting your money to better use than overpaying the mortgage - eg instead of paying down a 2% loan with after-tax income, you could be bumping up your pension contribution and benefit from an instant 25%-38% return in tax breaks. Looking back, I should probably have contributed a bit more towards my pension rather than focussing on getting my mortgage paid off asap. It was not the most efficient way of doing building wealth.

 

[Roy]

8 minutes ago, vand said:

Looking back, I should probably have contributed a bit more towards my pension rather than focussing on getting my mortgage paid off asap. It was not the most efficient way of doing building wealth.

 

It is a difficult one, but a positive result either way. I should pay off my BTL but the tenant (and inflation!) is doing that for me, so I can invest elsewhere.

[cravethatcoin]

On 04/07/2019 at 10:52, vand said:

Are you sure you're not over-complicating this...?

You can only pay off a capped maximum amount of the capital per year during the 5 year term of your fixed rate. Your overarching aim should just be to pay off that amount, whether you do it all in one lump sump or in monthly additional over-payments.

Once you have done so this will bring your interest payments down to reflect the reduced loan amount. 

Personally I wouldn't worry too much about them bringing the regular payment down following an overpayment if that's what they're insistent upon. So long as you are maxing out the 10% overpayment each year then it won't make much difference to your outstanding balance at the end of the fixed term.

 

There is also a strong argument that you could be putting your money to better use than overpaying the mortgage - eg instead of paying down a 2% loan with after-tax income, you could be bumping up your pension contribution and benefit from an instant 25%-38% return in tax breaks. Looking back, I should probably have contributed a bit more towards my pension rather than focussing on getting my mortgage paid off asap. It was not the most efficient way of doing building wealth.

 

Why would I want the bank to reduce my monthly payment meaning I reduce my mortgage less naturally over the year than if my payment is the same? Overpaying 10% of my mortgage in one hit should reduce the term to reflect and it's shocking that anyone would accept otherwise. Unless of course I did value the reduced monthly payment in which case the term would remain the sale.

I do agree that I could be putting my income to better use in terms of returns. But paying off the mortgage to me is a big deal physiologically so I'm willing to take the hit in the return of being debt free sooner. I have other investments including metals, cryptocurrencies, company bond so I am reasonably diversified and not throwing all my money at my mortgage.

Personally I do not like pensions, they are killed by inflation and inflation is only going to get worse over time. I'm 29, by the time I can take out my pension (the age of which will increase a lot by that time) it's going to be worth considerably less that I believe will nullify the 25-38% breaks. Even looking at what £1 could purchase 15 years ago compared to now is shocking. Look at a mars bar for example, when I was 10 it cost 30p and was large. Now a mars bar will cost a good 60-80p and it's half the size it used to be.  Lets say I can take my pension at 75 that's 46 years of inflation my pension will suffer. I prefer to have control of my wealth and access to it when needed.

Update

I would like to thank everyone for their feedback.

After a lot of messing around and sending my accounts etc NatWest finally made the change.

My term has now been reduced from 27 yrs 10 months to 24 years 7 months. 3.3 years reduction with my mortgage payment changed back to the original £399.