The overpayment reserve

What is it?

An overpayment reserve is what you create when you overpay your mortgage and it can be used primarily to reduce the amount of interest you pay on your balance although you can also use it for other benefits depending on your mortgage deal. You can find out if/how much you can overpay and if there are any limits by looking at your original mortgage offer paperwork or log on to the Internet Bank.

How an overpayment reserve works

When you overpay your mortgage it goes into an ‘overpayment reserve’ This allows you to do a number of things, depending on when you took out your current mortgage deal.

You could:

  • Pay off your mortgage earlier.
  • Underpay on your mortgage.
  • Borrow back your overpayments.

These links will give you more information to help you make the right decision for you.

You may be charged an Early Repayment Charge for making overpayments. This depends on your mortgage – We encourage you to check your original mortgage illustration and your offer for your specific product terms. Overpayment information including your Overpayment Allowance can be found in section 11.

The overpayment reserve is also used in our calculations for working out your Loan To Value (LTV) when you’re switching to a new mortgage deal.

For example:

The mortgage balance on your account says £50,000, but because that includes an overpayment reserve of £10,000, we recognise your balance to be £60,000.

We do this because we could allow you to underpay or borrow back by the £10,000 you’ve overpaid at anytime (depending on your mortgage deal T&Cs).

Could this affect me when I'm switching to a new mortgage deal?

It could do as our mortgage rates are in bands depending on your Loan To Value (LTV), so by us including the overpayment reserve, you could go into a higher band mortgage rate offer than you were expecting. However, you can give up some or all of your right to underpay or borrow back with the reserve money and we will use your now reduced balance to calculate you LTV band - potentially taking you into a lower band rate. If you wish to do this you’ll need to call us on 0800 30 20 11 or go into your local branch

What is LTV?

It is the percentage of borrowing you take out against your home. For example, if you have a mortgage of £150,000 and your home is worth £200,000, you have a Loan to Value (LTV) of 75%.