fixed rate - Where do my overpayments go???

leeloo1

Thanks in advance to anyone who can help me out! This is probably a really stupid question, but I'm making overpayments to try to pay off the mortgage a bit early but am not really financially minded so find it hard to get my head round it all!

When reading other people's threads on overpayments they've referred to having their payments or the term of their mortgage reduced by the bank, which would show the 'result' of their overpayment. But, I'm on a fixed rate so my payments always stay the same, and the term of the mortgage always stays the same too...

So, although when I check online I can see that the overpayments are coming off the total amount I owe, I can't see what, if any, effect these overpayments are having. So, am I wasting my time trying to overpay with a fixed rate mortgage or is there a point to all this?

I've put all my details into those online programs where it tells you that by overpaying you're reducing your mortgage term by X years and X £££s, but as this doesn't show up on my account am I doing something wrong???

(I'm with Nationwide on daily interest if that makes any difference)

Stardust77

Hi leeloo,

I'm with Nationwide and mine does exactly the same. I dont think they have the facility on their website to show the effect of your overpayments. I'e started up a little log to monitor the interest on the balance just to see if it makes a difference.

I think one day you'll just have paid it off early then the agreed redemption date and hey presto it's gone!!

Hawksmuir

I'm also with Nationwide, and I used to get a letter if I had paid off the maximum allowed in a month £500 (I think), stating that my monthly payments had been reduced due to my overpayment.

I spoke to Nationwide and asked if they could keep my payments at the same level and reduce the term. They did this and thats what is happening to my mortgage.

JonnyBravo

Yep the online "expected end date" or "redemption date" doesn't change AFAIAA with Nationwide.

Suffice to say if your payments are staying the same, your end date will be reducing from where it was.

financialbliss

Hi Leeloo1,

Can I ask how much your typical overpayment is?

I’m also with Nationwide – on a fixed mortgage. Unless you overpay by 500.00 per month, they won’t “recalculate” your mortgage.

When they do recalculate your mortgage, you have two options:

Reduce monthly payment (default).
Allowing this to happen means that if you’ve overpaid bu 500.00, this is divided out among the remaining mortgage payments, and in effect you’re only pre-paying your mortgage.

Reduce term.
If you ask Nationwide to do this, rather than reduce the payments month on month, they reduce the term of the mortgage. If you can afford to do this, this is the best option.

If you click into your mortgage, you’ll see an estimated completion date.

Don’t worry about not seeing anything immediately. I’ve not overpaid by 500.00 thus triggering a re-calculation at all this year and I’m seeing a reduction in daily interest on my mortgage, ie my overpayments are having an effect.

Hope this helps,
FB.

leeloo1

Thanks for the replies, I overpay regularly by £150 pm, but have on occasion overpaid by £500, without receiving any letters or anything.

As long as it is making an impact somewhere then I won't worry about it!

Rushy

Hi, I'm on a fixed rate with Newcastle BS, and don't even have an online account to look at, but I know that every overpayment I make is reducing the amount, and once a year I get a statement showing my overpayments, and how the total I owe has come down.

I set up a spreadsheet myself which shows how the total time will be reduced, and it roughly tallies with my yearly statement.

When my fixed rate comes to an end that is when the payments will be a lot lower than they would have been without the overpayments.

Keep up the good work, it all adds up!

leeloo1

Thanks Rushy, I guess you're right... sadly I'm looking at remortgaging in Oct and although mortgage will be around 12K smaller that 2 years ago the repayments will be around £70-£90 higher pm.

I hate higher interest rates! When we took out our 1st mortgage 5 years ago we had a fixed rate of 3.98% (and some offers were as low as 1.49%) - i think I'd like to have that rate again now please!