Question on Making Higher Monthly Repayments than Required

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buckfast

Registered User
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Hi All,

My wife and I are applying for a variable interest rate based mortgage and we are thinking that it might be best for us to repay more than we would be obliged to.

I understand that if we drawdown and start to make monthly repayments per direct debit, is it a case of simply requesting the bank to up the montly repayment amount and it's as simple as that?

The reason we will want to do this is to obviously save money in the long run by paying less interest.

Is this wise? Are there some potentials issues that I am missing here?

Thanks in advance
 
Depends on the bank, some have systems in place where you can add a top up payment and they will include it in the direct debit, with others you may have to do a separate standing order in addition to the direct debit and alternatively you may just be able to make transfers with online banking of varying amounts, it will just depend on the systems of the bank you are using.

There is no real catch to this if you have the spare cash, you will save interest, check if the extra money is reducing the amount the balance the interest is being calculated on just in case it is sitting as a credit on the account and not affecting the interest calculation. Obviously once you lodge the extra you can't get it back, some banks again may have a facility where the overpayment can be drawn down again should you need it.
 
From a bank perspective this may not be as simple as it sounds. Depends on the accounting system used by the bank. Generally loan repayments are on a DD system. The DD amount demanded each month is variable and related directly to amount of loan, interest rate and term outstanding. By paying in additional amounts you will find that this can distort the DD amount. I.e. DD payment will tend to reduce as loan amount reduces. You can allow for this by increasing the additional amount paid voluntary each month. The re are some banks who will change the DD payment upon request to a fixed higher amount, but many will not do this as the system cannot cater for it. Also be aware that even though you may make additional voluntary payments, these are regarded as such and a bank is not obliged to take these payments into account should you subsequently want to reduce your monthly payment to below the agreed level.
 
I'm with UB and I'm choosing to transfer monthly. I'm told their system will re-calculate direct debit amount each month so if i want to keep the combined monthly payment constant for period time, ill pay 200 extra in month 1 and 205 in month 2 etc. Personally gives me flexibility not to pay in a month where I might have another major expense, I just have to be mindful to do the transfer monthly but that wont be a problem. Not as easy to send letters changing standing order frequently. My goal is to get the monthly DD payment down to a level where i feel we can absorb interest rate hikes & reduced income due to wife going to reduced working week in future. At that point I may divert the cash to another use. Rationale being while nice to pay down and pay off mortgage early, i am in long term home so wont be selling to realize the equity so prefer to have a lump sum more liquid investment I can access if needed (hopefully earning close enough return to the interest on mortgage anyway). Plus with inflation the monthly payment should hopefully become a smaller % of income in 15 years. Granted you could argue if no mortgage to pay then lots more cash to build up and use.

Just my thinking
 
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