Making Overpayments on Your Mortgage

by Mark Alexander

10:08 AM, 17th February 2012
About 9 years ago

Making Overpayments on Your Mortgage

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Making Overpayments on Your Mortgage

In the last month I have received letters from three of my mortgage lenders suggesting that I should make overpayments on my buy to let mortgages. Their logic is that my mortgage payments have reduced considerably due to interest rates having dropped substantially since I first took the mortgages. They are right! I’m paying less than half what I used to pay as these are base rate tracker mortgages and the base rate is now 0.5% where it used to be 5%.

That’s a 90% reduction in base rate, lovely!

Am I going to take their advice?

Am I heck as like!

If I make overpayments on those mortgages, what are my chances of ever being able to borrow at those rates again?

If you are planning to reduce your debts based on your mortgage payment having reduced considerably there is a logical way to go about it.

The starting point is to create a list of all your debts and to order them by the interest rates you are paying. For example, if you have a credit card debt you might be paying as much as 30% interest on that. You may then have bank loans which are a bit cheaper and so on. Chances are your mortgages will be your cheapest debts in terms of interest rates. That’s not to say they are all the same rate so list those in order of interest rates too.

If at all possible, raise more cheap money (low interest rates) to repay the more expensive debts first. For example, if you owe £5,000 on credit cards which you are paying 30% interest on, find out if your mortgage lender will offer you a further advance on your mortgage to pay of the more expensive debts. In other words, swap expensive debt for cheap debt wherever possible. If your mortgage lender will oblige, the interest rate is likely to be significantly lower than you are paying on your credit card and you will see your monthly interest bills reducing. The same theory goes for all other debts. You can then add these savings to the extra money you were planning to use to repay your mortgage but instead of doing that, simply pay off your more expensive debts first. As you pay off your more expensive debts you will have more and more money to continue to chip away and any other debts and you will find that you debts begin to reduce very quickly after a while.

If you do have cheap tracker mortgages then be sure to pay these off last, still following the logic of paying off those with the highest interest rates first. Do check with your mortgage lenders too before committing to over-payments as some lenders actually charge you fees if you repay more than a certain amount in a year.

It also makes sense to build up a financial reserve before you repay cheap mortgages so that if you do ever need to raise extra money you don’t end up paying more for it. Offset mortgages can also be a useful tool but if you need advice try speaking to a good mortgage broker.

It’s also important to remember that you can offset your mortgage interest on your buy to let mortgages against your rental profits. Therefore, even if your personal mortgage appears to be slightly cheaper than your buy to let mortgage it may well be worth paying down your personal mortgage before you start paying off your buy to lets. It’s well worth paying for a quick meeting with a local accountant to work the figures out for you.

I wrote a related article back in October 2010 called “What you shouldn’t do with your buy to let mortgage“. Simply click on the orange text to read that article.

My concern is that with so many of these letters going out to landlords, some will be thinking it’s a good idea to make over-payments on their mortgages without thinking things through properly. Therefore, I urge you to share this article via email, Facebook or Twitter with any other landlords you know.

Just ask yourself why these lenders are suggesting this. Could it be that any money you pay off your cheap mortgage could be loaned to a new borrower at a considerably higher price? Call me skeptical if you wish but if you are happy to trust bankers to offer advice that’s in your interests that’s obviously your choice.


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Comments

Mark Alexander

18:36 PM, 26th February 2012
About 9 years ago

Hi Mike

Please email editor@property118.com and copy to me mark@property118.com

19:43 PM, 26th February 2012
About 9 years ago

I have 5 ME mortgages and can assure you that ALL they are interested in is redeeming the loan book as soon as they can.
They are not the slightest bit interested in you as a consumer.
They are the govt and as a effective govt dept their mission is to recover all the mortgages outstanding ASAP.
I have ythis from their collections dept direct.
Tehy are not interesed in you as a long standing mortgage holder.
They want you to either redeem or f--k to another lender; which we know in this climate of changing criteria is an impossibility for most ME mortgage holders.

Mark Alexander

20:32 PM, 26th February 2012
About 9 years ago

The exit strategy for Mortgage Express really caused uproar when one of their representatives came face to face with the Northern Property Tribe last May. You can read more about it from the link below

http://www.property118.com/index.php/uproar-as-mortgage-express-spokesman-reveals-their-exit-strategies/7808/ 

12:52 PM, 24th March 2012
About 9 years ago

Hi all. Good site!

I have a number of MX BTL loans and have been approached by the company for a meeting. I should say that I have traded seamlessly with them for many years and have never before been approached like this. I agreed to the meeting, and in a subsequent confirmation letter from them they set out information that they would like to be available for the meet, including portfolio information showing loans with other lenders and even tax returns!

This seems unduly onerous for what was announced as a simple meet & greet and it now seems to be turning into something more.

I am curious as to what info they can reasonably expect to be provided as there are no reporting provisions within the agreements to the best of my knowledge. I fear, never having met them, that we are likely to get off on the wrong foot as I am not inclined to bare my soul when I don't even provide this info to my bank.

Anyone had any similar experiences? 

13:09 PM, 24th March 2012
About 9 years ago

No but I would tell them to get stuffed and mind their own business.
Do not divulge ANY information to them.
Providing payments are being made they can't do anything.
They don't care about seemlessly trading they want the loan monies back.
What you could do is see if you could remortgage elsewhere for a better deal and say providing they pay the fees you will move to another lender.
I very much doubt, however , that you will find another lender at a rate as competetive as MX.
No harm in trying as it could give you a good negotiating position if they they try to force you to liquidate your portfolio.
If you have lots of positive equity with them then you are at great risk as they will find some obscure condition which means they will force you to sell.
Do not trust these people as far as you can throw them!

Mark Alexander

13:10 PM, 24th March 2012
About 9 years ago

Trust your instincts.

My opinion is that you are not at liberty to meet them or to provide any information.

Remember, their sole motive is to recover their money, either now or in the near future.

The choice is yours but what you are in for, should you choose to meet them, is a glossy presentation on why you should overpay and possibly a few stark revelations that if you decide to sell one property and repay their loan they can retain 100% of the sale proceeds and call in all other loans. This will all be dressed up with "we can't advise you in isolation of all the facts surrounding your finances".

If you comply with their requests they win. If they can't convince you to over pay, but they glean enough information to establish that you are a better credit risk than their estimations suggest, then you help them to increase the markets percieved value of their loan book asetts and reduce your chances of them incentivising you to move on when their backs are against the wall and their deadlines for repayment are ever closer.

These days, when they call me, I just say that I'm too stressed out with the economy and my fiances to even consider talking to them but if I am unable to make my payments they will be the first to know about it. They do try very hard to get more info and they are very skilled at it. I think I must just a bit more skilled than they are though as the conversation always ends with them feeling very frustrated. They also get a flea in their ear about the advice that they are offering to people which is so clearly geared towards their objective to reduce their loan book, whether or not it is in the best interests of their clients 😉

19:42 PM, 9th April 2012
About 9 years ago

Thanks guys. Sounds like fair advice. I will meet with them though, principally to listen to what they have to say. I'm all for reducing overall gearing (by whatever means best) but I think it will need to be a convincing argument to pay off MX first as it's the cheapest borrowing in my portfolio. If anything interesting comes out I'll report back

21:26 PM, 9th April 2012
About 9 years ago

I would suggest you DO NOT reduce ANY of your gearing until we know what the outcome is of the proposed intoduction, of restricting to income only in 2013 by the EU of BTL mortgages.
If they do restrict based on income criteria and there has been no satisfactory workaround devised then you will be thankful for NOT making overpayments.
I would keep your status quo the same; maintain a watching brief over these issues and if it turns out after 2013 that  one may still obtain BTL mortgages based on IO, rental income criteria then you may carry on as before and possibly decide to reduce your gearing on your more expensive mortgages.
Make sure that any overpayments you would have made are placed in a high interest savings acoount that has no financial relationship with ANY of your lenders.
Otherwise you might find they start enforcing an offset policy.
Such a situation if it exists will be buried away in some obscure section of your terms and conditions.
Personally I think it should be compulsory to provide upon request a normal print size copy of terms and conditions.

10:26 AM, 15th May 2012
About 8 years ago

Thanks Paul
I thought I'd update you following contact with MX. Although I planned to meet my relationship manager, it never happened. He called the day before to say that MX are subject to some restructuring which likely would result in some people leaving the company or having their territories changed. We agreed therefore not to meet but we did have a brief run through what the meeting was likely to cover. I will try to summarise but I suspect no revelations here:
 
- MX will continue to honour the T&C's of existing loans, and will not be looking to bully/coerce people into redeeming/repaying loans where they are operating normally.

- However, they will be enforcing breaches. Specific mention was made of late payments, and his advice was to ensure that direct debits are set up early in the month so that in the event of a glitch there is plenty of month left to ensure that a repayment is made each calendar month.
 
- As has been reiterated here, they are focussed on reducing/eliminating their loan book and are keen to help people to repay or relocate their borrowing.

- There are no alternative products to move to. Choices is still available - I asked whether realistically drawing overpayments down again is likely and the conversation went on as expected to LTV's.

- We did not broach the subject of whether redeeming one loan would trigger a redemption of the portfolio, or whether residue of a property sale would be retained to reduce other loans.

- There was no suggestion that any inducements might become available to persuade borrowers to redeem/relocate. However, I note from a recent questionnaire from CHL that they are asking people whether they would redeem their loans if they were discounted by 10%. It will be interesting to see whether this kind of idea becomes policy but it occurs to me that irrespective of the chunky difference in margins over base between a lot of historic MX/CHL-type loans and what is available nowadays, there seem to be pretty hefty arrangement fees in the current market.. Not being a mathematician I wonder, Paul's comments aside, what kind of write-down would make it compelling to redeem.

Cheers all

11:52 AM, 15th May 2012
About 8 years ago

Interesting,  but the most important query was the 2nd from last paragraph;  why won't they answer!
For MX borrowers there is NO other alternative equally competetive product out there.
Realisitically,  therefore,  there is no other product that a MX borrower could go to.
So they are stuck with us,  for me that will be 19 years and 8 months!!!
How they can be so deceitful about the Choices offer just beggars belief.
Talk about being disingenuous or what!?
The best thing any MX borrower can do is keep your head down, make your payments, hopwe interest rates don't rise drastically anytime soon and try and build up a fighting fund for when interest rates do rise.
I know if they went back up to 6% I would have to subsidise the mortgages as the rent would be insufficient.
As I am only on a pension,  a bit difficult!!
So everything crossed that the status quo exists for a long, long time.
which looking at how things are going in the euro zone will continue.

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