Mortgage Overpayment question

Bosshog

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218
I have a tracker mortgage with PTSB. I have been making small overpayments each month, but i now want to increase that amount.

In the small print on the overpayment application form it states....

"Although the scheduled term on the mortgage will not be reduced, this credit will effectively reedeem your mortgage at an earlier date."

can someone clarify exactly what this means please?
 

ClubMan

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43,858
I think it means that the effective term of the mortgage is reduced by making additional capital repayments and keeping your repayments at their normal level but they do not actually go to the trouble of rescheduling the loan?
 

Trish2006

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Ours is the same Bosshog. With PTSB, not tracker, but we've been overpaying for the last 4 years or so. When we get our statement we have a separate column for overpayments. They are considered when calculating interest so they are reducing the capital. We haven't rescheduled the loan cos who knows what might happen where we'd have to stop the overpayments, but if we keep going as we are it'll be cleared about 7 years before the term. So we're now 'effectively' paying a 23 year mortgage instead of a 30 year even though it's still officially a 30 year mortgage. Doing it this way also means that if we ever need to take a break for a month or two they'll use the overpayments to cover the missing payments.
 

Bosshog

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218
thank you both for that.
thats kind of what i thought but you never know, what with banks and all their jargon and jazzy slogans!
 

lfcfan

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73
We have a 2 year fixed rate mortgage for a self build over 35 years. After the 2 years we were going to reduce the term to 20 years on either another fixed rate (2 more years) or tracker. Would it make more sense to change to a variable/tracker mortgage and make overpayments for the same amount the extra would have been on the rescheduled mortgage?
 

Bosshog

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218
I may be wrong, but i dont think many lenders will allow you to make overpayments if you are on a fixed rate, so you might just have to switch to variable / tracker.
 

ClubMan

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43,858
You can make overpayments/accelerated capital repayments on a fixed mortgage but you will generally pay a penalty. Check with your lender.

The second part of your question is answered by the fact that making accelerated regular or lump sum capital repayments will always save you money in the long run. You are chipping away at the capital quicker than original planned so you avoid higher interest costs.
 

santoro

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26
What seems to be happening here is that any over payments made to the mortgage are going on credit in your mortgage account and not actually being taken off the term or repayment amount.

This happens to alot of EBS customers, for example lodge a 10,000 to their mortgage account. This will then sit on credit on the account unless they specifically instruct the lender to take these funds to reduce the term or the monthly repayment amount. So if a customer has 100,000 of a mortgage and 10,000 in credit on the loan account then interest is only paid on 90,000. This will then alter the proportion of capital to interest in each months mortgage repayment saving you years on the loan(depending on the amount of credit in the mortgage account).

In relation to your 2nd question:

someone on a fixed rate can over pay by asking the lender to fix their repayments at a certain amount.by paying off a lump sum during a fixed term you will then be subject to penalties.
 

lfcfan

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73
Just checked a mortgage calculator and reducing the term to 20 years and overpaying by the same amount on the current mortgage pretty much leads to the same thing, a 15 year reduction. Overpayments would be the best choice as the overpayment could be stopped if interest rates increased too much etc. Thanks for the replies!
 

lanie

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79
I am very new to all this. If you overpay by a certain amount but don't decrease the scheduling of the term, does the set mortgage amount always stay the same or when you come to remortgage eg 2 years later, is the new balance (should be less due to overpayments) used to work the payments out.
Thanks guys
 
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