More info on mortgage overpayments: clubman?

[suds]

Sorry to return to a question raised in a couple of earlier threads, which suggested that following payment of a lump sum, if mortgage repayments were kept at their pre-capital repayment level then the term would reduce too. In response to a question from me on this issue, Clubman suggested 'You should put the instructions in writing to the lender that any overpayments are capital repayments. Some lenders, especially if not told explicitly, will simply lodge the additional money to your account as a credit but not reduce the outstanding capital balance thus giving you no benefit. Best to make sure by writing to the lender to make the instructions explicit.' I am drafting a letter to my bank to this effect, but suddenly realise I have no idea what lodging the money to my account as a credit actually means. Any explanation?

 

[ClubMan]

What I meant was that some lenders, unless told otherwise, will take overpayments and hold onto them (e.g. in an account - most likely the mortgage account) as a lodgement rather than using them to reduce the capital outstanding. That means that money is doing nothing but sitting there and would only be used if, for example, you missed a normal repayment at which point the normal repayment would be drawn from the surplus cash stored in the account. Anybody who is making accelerated mortgage repayments should make it clear that they do not want this to happen but that they want the additional money paid off the capital immediately. In fact don't even bother mentioning the alternative situation at all - just tell them that you want any lump sum or regular overpayments to be used to reduce the outstanding capital balance until further notice. No point in complicating matters by also describing the situation that you want to avoid. Does that make sense?

 

[suds]

Yes - thanks very much, that makes sense. Much appreciated.