Named And Shamed: 11 Lenders Stinging Customers On Mortgage Overpayments

Millions of Briton’s are making overpayments on their mortgages at the moment by trying to take a chunk out of their debt before interest rates rise. However those borrowing from any of the following 11 lenders, will be losing out on interest savings for up to a year because of the way they calculate interest. In short they are taking your hard earned money. Why let them?

Why it makes a difference

So if you make your overpayment the day after the interest is calculated, you will not see any benefit from it for a whole year. No kidding. This is because they only calculate the interest on your mortgage once a year.

As an example, if you had a £150,000 mortgage at 5.49 per cent interest only, and wanted to pay off £30,000, you would pay £1,647 in interest more than you would need to if you paid it the day after your interest had been calculated, and you did not get the benefit for the rest of the year.

Meanwhile, the lender will be getting a nice interest payment from your money, adding insult to injury.

Out of the ordinary

Most lenders now calculate interest either daily or monthly, so you would wait at most 31 days for your overpayment to be taken off the outstanding amount of your mortgage, even if you made the payment at the wrong time of the month.

What you should be doing

So if you want to make overpayments on your mortgage, make sure that:

• Your lender calculates interest daily so it does not matter when you make the payment
• If it is calculated monthly or annually, then make a payment the day before the interest is calculated so you get an immediate benefit.

Check for a better deal

However, let’s be real – none of these 11 building societies are currently in the best buy tables, so why not see if you can get a better deal elsewhere? Speak to a mortgage broker to find out how much better you can do.

Most lenders will allow you to overpay at least 10 per cent of your initial mortgage borrowing each year, but you should check with your broker if your lender has any different rules.

If you want to make overpayments regularly, then look for a lender with flexible mortgage terms, such as First Direct’s at 2.39 per cent variable. This has no tie in either, so you can move to another deal any time you want.

So who are they?

The following 11 lenders all calculate their mortgage interest on loans annually, according to Moneyfacts:

Bath Building Society

Buckinghamshire Building Society

Chorley & Districts Building Society (all products bar one)

Dunfermline Building Societies

Earl Shilton Building Society (four out of six products)

First Trust Bank (Northern Ireland)

Holmesdale Building Society

Leeds Building Society

National Counties Building Society

Progressive Building Society

Vernon Building Society (five out of seven products)