overpaying mortgage... pay more?
Discussion
Can somebody pleeeeease resolve ongoing financial dilemma in my brain. Its driving me crazy and is symptomatic of having money in the bank I am dying to invest in something 'more sensible'.
2 years ago I call santander to pay lump off mortgage (am allowed 10% PA). Lady says you can only increase monthly payments and reduce term. Oh, ok, lets do that then and term reduced from 22 yrs to 14 yrs IIRC. Now I am guessing this method ensures that santander gets their interest paid back more so than paying off a lump sum? Is that right? Anyway, 2 years on and the lump in the bank is bigger and growing. I didnt overpay enough evidentally.
So do I overpay some more, on my current fixed crap rate (6%) or wait until 2012 for remortgage opportunity and pay off big lump then (if I can?) and take a reduced mortgage on a better rate? Does it matter either way?
Secondly, if we want to move house in 2012/13 is it better to have a lump in the bank, or instead overpay some more now and take a bigger than planned mortgage in 2012/13? Does it matter?
Thanks in advance for advice!!!!! Big love to PH's resident IFAs!!!
2 years ago I call santander to pay lump off mortgage (am allowed 10% PA). Lady says you can only increase monthly payments and reduce term. Oh, ok, lets do that then and term reduced from 22 yrs to 14 yrs IIRC. Now I am guessing this method ensures that santander gets their interest paid back more so than paying off a lump sum? Is that right? Anyway, 2 years on and the lump in the bank is bigger and growing. I didnt overpay enough evidentally.
So do I overpay some more, on my current fixed crap rate (6%) or wait until 2012 for remortgage opportunity and pay off big lump then (if I can?) and take a reduced mortgage on a better rate? Does it matter either way?
Secondly, if we want to move house in 2012/13 is it better to have a lump in the bank, or instead overpay some more now and take a bigger than planned mortgage in 2012/13? Does it matter?
Thanks in advance for advice!!!!! Big love to PH's resident IFAs!!!
What happens next year? the fixed rate finishes and you go to the variable? then there shouldn't be any penalties for overpaying there isn't with HSBC I could overpay as much as I like any time I like hopefully you will be able to do the same.
Might be worth keeping a deposit for the next move though. In these times it is tricky to sell a house quickly if all your money is in equity you could miss the next house having to sell the current one to release equity.
Might be worth keeping a deposit for the next move though. In these times it is tricky to sell a house quickly if all your money is in equity you could miss the next house having to sell the current one to release equity.
Overpaying each month will not reduce the overall interest by as much as paying a lump sum as the balance remains higher for longer.
However, if you are looking to move in the near future it may be worth hanging on tot the money to cover fees, costs and a bit more of a deposit. Once you pay it to them it is gone (unless they allow you to draw back out any overpayments made). As you say, you can always pay it off around the time of loking to re-mortgage.
Oh and there can be restrictions/penalties on overpaying too much - it depends on the bank. Just because HSBC don't penalise you does not mean others will not.
However, if you are looking to move in the near future it may be worth hanging on tot the money to cover fees, costs and a bit more of a deposit. Once you pay it to them it is gone (unless they allow you to draw back out any overpayments made). As you say, you can always pay it off around the time of loking to re-mortgage.
Oh and there can be restrictions/penalties on overpaying too much - it depends on the bank. Just because HSBC don't penalise you does not mean others will not.
1. Paying off the mortgage at a 6% fixed rate is an EXTREMELY good investment.
2. You should prioritise getting off that rate ASAP if it saves you money. Best buys today are at 3.4% fixed for 5 years or even lower variable. Make sure you do the math on what the penalties for changing provider are relative to the monthly cost saving on a lower rate for X number of months. You may still be ahead if you change provider.
3. When you move, IIRC it is simply a redemption of the mortgage and taking a new one out. Even with a "portable" mortgage they still check that your circumstances haven't changed and you can still make the payments etc... otherwise they won't let you move it. Soooooooo - this means that you need to look at any move as a blank sheet. There is pretty much no advantage of having a larger or smaller mortgage going into it. Now of course you need actual cash for a deposit, stamp duty, fees etc... but you can always take out a larger mortgage to cover those AT THAT TIME.
In the meantime you have a chance to pay off as much of that hideously high rate as possible.
Finally, I am astonished by that advice from Santander and I suspect you were talking to a muppet/con artist/professional fobber off.
If you are allowed to pay back up to 10% per annum with no penalty then that is exactly what it says on the tin.
This adjusting the monthly payments b
ks is bkS.
Speak to someone in charge.
They OBVIOUSLY want you just to pay off slower by raising the monthly so that they can continue to fleece you on the interest rate as long as possible.
Frankly, you probably have a claim from the ombudsman for getting that TERRIBLE advice from Santander.
(Unless of course there is a VERY BIZARRE clause in your mortgage contract, which restricts the overpayments in the way you described.)
Either way, what you should have done is reduced the term to whatever period cleaned out your excess savings in one month and then adjusted it back again.
Banks doing this to people makes me realise what a bunch of criminals run those places.
2. You should prioritise getting off that rate ASAP if it saves you money. Best buys today are at 3.4% fixed for 5 years or even lower variable. Make sure you do the math on what the penalties for changing provider are relative to the monthly cost saving on a lower rate for X number of months. You may still be ahead if you change provider.
3. When you move, IIRC it is simply a redemption of the mortgage and taking a new one out. Even with a "portable" mortgage they still check that your circumstances haven't changed and you can still make the payments etc... otherwise they won't let you move it. Soooooooo - this means that you need to look at any move as a blank sheet. There is pretty much no advantage of having a larger or smaller mortgage going into it. Now of course you need actual cash for a deposit, stamp duty, fees etc... but you can always take out a larger mortgage to cover those AT THAT TIME.
In the meantime you have a chance to pay off as much of that hideously high rate as possible.
Finally, I am astonished by that advice from Santander and I suspect you were talking to a muppet/con artist/professional fobber off.
If you are allowed to pay back up to 10% per annum with no penalty then that is exactly what it says on the tin.
This adjusting the monthly payments b
ks is bkS.Speak to someone in charge.
They OBVIOUSLY want you just to pay off slower by raising the monthly so that they can continue to fleece you on the interest rate as long as possible.
Frankly, you probably have a claim from the ombudsman for getting that TERRIBLE advice from Santander.
(Unless of course there is a VERY BIZARRE clause in your mortgage contract, which restricts the overpayments in the way you described.)
Either way, what you should have done is reduced the term to whatever period cleaned out your excess savings in one month and then adjusted it back again.
Banks doing this to people makes me realise what a bunch of criminals run those places.
walm said:
(Unless of course there is a VERY BIZARRE clause in your mortgage contract, which restricts the overpayments in the way you described.)
Anumber of lenders used to have odd clauses on their overpayments, allaince and Leicester for instance would only allow o/ps in January each year. I have to say though that Santander isn't one who are that tight to my knowledge (A&L are nowe part of Santander so maybe its a leftover?)
walm said:
3. When you move, IIRC it is simply a redemption of the mortgage and taking a new one out. Even with a "portable" mortgage they still check that your circumstances haven't changed and you can still make the payments etc... otherwise they won't let you move it. Soooooooo - this means that you need to look at any move as a blank sheet. There is pretty much no advantage of having a larger or smaller mortgage going into it. Now of course you need actual cash for a deposit, stamp duty, fees etc... but you can always take out a larger mortgage to cover those AT THAT TIME.
I agree with this, the only caveat being that having the cash in the bank may give you some flexibility when it comes to moving.Wow, i think a penny has dropped thanks to your responses! So walm, what you are saying is santander have indeed fleeced me and in the current arrangement the monthlys have gone up along with their monthly interest as a portion thereof - on a high rate. Not best value from my overpayment at all? I'll check the t&cs in the morning. Thanks again for your advice. Ps the mortgage was underwitten by the Abbey originally.
Toro Rosso said:
Overpaying each month will not reduce the overall interest by as much as paying a lump sum as the balance remains higher for longer
Understood. It didnt feel right at the time and now 2 years on i feel like a mug. Getting pissed off the more i think about it actually! Paperwork is key but will anything really come of a complaint i wonder...NIIKME said:
Understood. It didnt feel right at the time and now 2 years on i feel like a mug. Getting pissed off the more i think about it actually! Paperwork is key but will anything really come of a complaint i wonder...
Its worth making a formal complaint. Do it in writing and a keep a copy. Santander are terrible for dealing with a complaints and may not get back to you within the set timescales (8 weeks?), after which point you have the right to ask the FOS to assess the situation. Gassing Station | Finance | Top of Page | What's New | My Stuff