When you pay more than your monthly payment we do three things:
- Take all overpayments off your balance straight away and reduce the interest you pay us from the next day.
- Reduce your monthly payment (or term if you've asked us to) if you overpay by more than £500.
- Keep track of all the extra you've paid on your mortgage and call this amount your 'overpayment reserve', which allows you to underpay (or borrow back, if you have that feature).
When you borrow more, we include your current balance and the overpayment reserve when working out your loan to value (LTV). The rates available to you will depend on your LTV band - the higher your LTV band, the higher the rate you'll pay. Your overpayment reserve increases your LTV, but may not mean you move to a higher LTV band. When you borrow more, you've got two options with your overpayment reserve:
Option 1: Reduce your overpayment reserve
This means you won’t be able to underpay on the overpayment reserve you’ve removed, but your LTV will be lower and may mean you pay a lower rate if you move to a lower LTV band.
Option 2: Keep your overpayment reserve
This means you'll be able to use your overpayment reserve to underpay, but your LTV will be higher and may mean you'll need to pay a higher rate if you move to a higher LTV band.
If you’d like to find out more about how your overpayment reserve could impact your mortgage, please call us on 0800 30 20 11.