Mortgage Overpayments

[midlandsgrimpeur]

I am thinking of making a one off lump sum overpayment on my mortgage. I am 2 years into a 5 year fixed. What I really want to know is what my arrears would be at year 5 if I made the lump sum payment now as opposed to when I come to re-mortgage at year 5?

Does anyone have a calculation for this?

The reason I ask is that I used the MoneySavingExpert calculator and also asked my mortgage provider and both came up with drastically different figures. TBF the Halifax advisor was working on a very rough calculation done solely from their idea of how to reach a figure! Also, they will not provide any concrete calculation until after the lump sum payment is made which is rather unhelpful.

 

[bikingdad90]

Are you aware that the value of the overpayment will be capped at x level and after which an early repayment charge will apply?

 

[Bonefish Blues]

Surely your mortgage company will model it for you? I had a detailed conversation with mine and they were very helpful.

 

[Pblakeney]

Surely your mortgage company will model it for you? I had a detailed conversation with mine and they were very helpful.

This.

 

[T4tomo]

I am thinking of making a one off lump sum overpayment on my mortgage. I am 2 years into a 5 year fixed. What I really want to know is what my arrears would be at year 5 if I made the lump sum payment now as opposed to when I come to re-mortgage at year 5?

Does anyone have a calculation for this?

The reason I ask is that I used the MoneySavingExpert calculator and also asked my mortgage provider and both came up with drastically different figures. TBF the Halifax advisor was working on a very rough calculation done solely from their idea of how to reach a figure! Also, they will not provide any concrete calculation until after the lump sum payment is made which is rather unhelpful.

roughly speaking you are saving 3 year interest on the amount you overpay (assuming no penalty for making an overpayment mid term)

so if its £10000 over payment and your rate is 5.0% then your saving 5%*£10000*3 years = £1500 by making the £10000 payment now rather than in 3 years time.

*in truth it will be a tad more due to the compound interest saving, but above is a good simple back of fag packet calculation.

 

[midlandsgrimpeur]

Are you aware that the value of the overpayment will be capped at x level and after which an early repayment charge will apply?

Yes, thanks. I have the overpayment charge and also the recalculated monthly payment.

 

[midlandsgrimpeur]

Surely your mortgage company will model it for you? I had a detailed conversation with mine and they were very helpful.

You would have thought, but no. I have spoken to three different teams within Halifax and they do not do this until after a lump sum payment has been made, so I am told.

They have provided me with the overpayment charge as I would be above the allowed 10% limit and also a re-calculated monthly charge but they do not model the remaining payments for the outstanding 36 months based on the new arrears until after the lump sum has been made.

As mentioned in my original post, an advisor did a guestimate but I believe their figures to be wrong ( not 100% sure on this though, hence the thread).

 

[T4tomo]

Yes, thanks. I have the overpayment charge and also the recalculated monthly payment.

if there is an overpayment penalty charge then you will almost certainly be better off sticking the £10000* in a good no / limited savings account or fixed term deposit until the penalty period has ended, as the overpayment penalty will be more punitive than the interest rate differential between the mortgage and savings.

EDIT - just seen post above - limit yourself to the 10% allowance - thats usual per annum, so do another in 12 months time and invest the spare funds elsewhere as suggested or in an ISA

 

[midlandsgrimpeur]

roughly speaking you are saving 3 year interest on the amount you overpay (assuming no penalty for making an overpayment mid term)

so if its £10000 over payment and your rate is 5.0% then your saving 5%*£10000*3 years = £1500 by making the £10000 payment now rather than in 3 years time.

*in truth it will be a tad more due to the compound interest saving, but above is a good simple back of fag packet calculation.

Thanks.

You will have to forgive me, maths is not a strong suit. Would a rough calculation therefore be; current arrears - lump sum - ongoing capital repayments (over 3 years)- interest saved after lump sum (over 3 years) = arrears at year 5?

*Have seen your post re sticking to 10% limit. This is something I am also considering, just trying to work out which is the better option at present!

 

[Pblakeney]

if there is an overpayment penalty charge then you will almost certainly be better off sticking the £10000* in a good no / limited savings account or fixed term deposit until the penalty period has ended, as the overpayment penalty will be more punitive than the interest rate differential between the mortgage and savings.

EDIT - just seen post above - limit yourself to the 10% allowance - thats usual per annum, so do another in 12 months time and invest the spare funds elsewhere as suggested or in an ISA

That sounds like the best idea.
As an addition, if you can afford it then I'd suggest maintaining your current payment amount (or even increasing it) and reduce the term as the savings on that are massive.

 

[Animo]

There is likely to be an annual amount of overpayment allowed without penalty so just stagger the payments over however many years is necessary to avoid the penalty.

 

[DCLane]

+1 to @Animo 's suggestion. When I had a mortgage, also with the Halifax, I negotiated no over-payment penalties when taking it out so over-paid in the monthly amount plus lump sums when I could.

 

[Bonefish Blues]

You would have thought, but no. I have spoken to three different teams within Halifax and they do not do this until after a lump sum payment has been made, so I am told.

They have provided me with the overpayment charge as I would be above the allowed 10% limit and also a re-calculated monthly charge but they do not model the remaining payments for the outstanding 36 months based on the new arrears until after the lump sum has been made.

As mentioned in my original post, an advisor did a guesstimate but I believe their figures to be wrong ( not 100% sure on this though, hence the thread).

That is hilariously bad and unhelpful. It's almost as if they didn't really want to put processes in to help their customers.

 

[All uphill]

That sounds like the best idea.
As an addition, if you can afford it then I'd suggest maintaining your current payment amount (or even increasing it) and reduce the term as the savings on that are massive.

That is so true.

We overpaid £100 each month on what "should" have been £400 pm payments.. That turned a 25 year mortgage into a 13 year and 7 months mortgage.

In other words 25 % overpayment resulted in a 45% shorter term. The magic of compound interest!

 

[midlandsgrimpeur]

That is hilariously bad and unhelpful. It's almost as if they didn't really want to put processes in to help their customers.

They did used to have a comprehensive online calculator which would model all of this. For some reason they took it down about a year or so ago and replaced it with a much simpler one that does not provide the info I need!