# Mortgage Overpayments advice

Could anyone give me some advice about mortgages and overpayments?. If I had a mortgage that was part repayment and part interest only (endowment) at the same SVR Interest rate, and with no penalties, from an interest point of view would I be financially better off by making over payments against the repayment or interest only part of the mortgage? Would appreciate any advice? Thanks

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if you have low interest rates on a mortgage and higher interest on savings, then its better to stash it in a high interst account

Original Poster

Go into the branch and ask to speak to the mortage advisor. Sounds a bit complicated to me. Good luck with getting it sorted.

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Original Poster

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If you can take advantage of the low interest rates in your mortgage then pile in as much cash as you can afford because the interest rate will be going up next year.

To see the effect of overpayments on your mortgage use this Calculator

I can't see how it would make any difference, unless you had 2 sums, 50k each for example, that were at different interest rates, in which case you'd want to pay off the higher interest one (assuming steady rates), assuming that your bank would allow that.

You may be better off saving the money, ie my mortgage is at 1.5%, I could get better savings than that even after tax. So I save rather than decrease mortgage. That has the added bonus of being available for emergencies.

Original Poster

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thats because the dont know, everything is done by computer, when i queried something on mine they didnt have a clue and went in branch and neither did they, you may as well spend hours trying to work it out yourself

If they have ignored your instructions, your best bet is to write a fully detailed complaint letter (find out the name of the head of department, not just a floor manager, and address it to them) and enclose any proof you can of what your instructions were. Get some proper advice and try and find out if/how much their mistake has cost you and state this in your letter, and say that you want them to rectify their mistake and pay this amount off the repayment part of your mortgage.

If they're still wishy washy and messing you around or not giving you straight answers, or even tell you they're not going to pay up, advise them that you'll be taking it further with the financial ombudsman and then contact them and give them all the details and they'll investigate it for you

financial-ombudsman.org.uk/con…htm

Edited by:"Benjimoron" 28th Oct 2010Banned

i think the op did not want to pay off the endowment 1st, thinking that would be covered when policy matured, meaning maybe he would be now mortgage free (except a small amount in interest only) so to speak as in no more payments till maturity of said policy, where as now he still has mortgage repayments and interest to meet

Edited by:"sassie" 29th Oct 2010Banned

That bits wrong depending on the size of the savings, if you have £100,000 mortgage, £10,000 savings....5% of £100,000 is more than 5% of £10,000

Not entirely true - Lets assume his mortgage was £200k, split with £100k interest only and £100k repayment. He's paying interest on the full £100k and as the balance never decreases, the amount of interest he pays won't change. When he's making payments to the repayment part of the £100k, each month, every month he'll be paying ever so slightly less interest, as some of the capital has been repaid, therefore the amount of interest he's being charged on the repayment part will decrease ever so slightly with each monthly payment.

It's because of the split in how the funds are allocated in the repayment part that someone needs to calculate whether he's lost out or not by them not following his instructions. I'm sure we're not talking huge figures, but his lender should at least give him the courtesy of correcting their mistake and dealing with his complaint appropriately. Unfortunately, some lenders avoid dealing with cases where a human brain needs using until you threaten them with the ombudsman!

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you wanna have a little think

Edited by:"sassie" 29th Oct 2010Original Poster

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okay 5% of £100,000 is more than 10% of £10,000

better?

Banned

mortgage !00k - pay 10 k off, leaves 90k, saving you you 5% interest between those two figures so £500, and of course you couldnt pull it back out should you need it

Sassie is right. The bit in bold is where you're going wrong. You're calculating that rate on the whole mortgage, where you should be calculating it on the overpayment. ie the figure in bold should be £10k.

So it's the same, apart from the savings would be taxed.

Well surely, technically, he's paying interest on the whole lot. Repayment still has interest on it! Therefore whether he pays it off interest only, or repayment will still bring the balance down, meaning he's paying less interest. The same amount less interest whether it goes on either side (assuming they're on the same interest rate), (repayment schedule may change slightly).

Like I said, I'm no expert, but maybe why the bank can't answer is because it doesn't exactly make sense, paying off the balance will save you the same interest, whether it's put on one side or the other side (assuming they're on the same interest rate), (repayment schedule may change slightly).

Nope, the amount of interest paid on the repayment side does change after each payment, even though it's only by a slight amount. Going back to the theoretical £100k balance, say a payment of £600 reduced the capital by £10, interest for next month is then charged on £99,990k and not on the previous £100k. The total difference after properly calculating might not be a massive amount, but there will be a difference. Before I had the kids, I was a mortgage advisor and in the office had to deal with things like these fairly often. Time consuming to work out, but I'd imagine that's why he can't get a straight answer until he asks to take the complaint to a higher level.

How can that be wrong?