Overpayment - Nationwide

rlfan82

Hi

We currently have the money available to pay off our mortgage. we have been advised to invest it instead.

However we are able to overpay our nationwide mortgage by £500 per month with no penalty. Does anyone have any advice on whether it is best to do this and what impact overpaying has on our mortgage. Does it pay it off with interest or interest free?

koexelek

Unless you can invest that £500 per month at a higher rate ( net of tax) than you are paying on your mortgage, it definitely makes sense.

Also, any overpayments made to Nationwide can be drawn back at any time.

I assume you are tied in at the moment, which means there would be a penalty if you repaid it in full ?

rlfan82

koexelek wrote: »

Unless you can invest that £500 per month at a higher rate ( net of tax) than you are paying on your mortgage, it definitely makes sense.

Also, any overpayments made to Nationwide can be drawn back at any time.

I assume you are tied in at the moment, which means there would be a penalty if you repaid it in full ?

Yep, tied in for another 4.5 years

KTF

All overpayments come off the capital. A normal mortgage repayment comes off the capital and interest (mainly interest).

koexelek

I'd put the lump sum in a high interest account then, and drip feed the mortgage at £500pm until such time as you can repay it in full.

Nationwide early redemption penalties usually are not too bad, compared to some lenders, but I doubt if it would be worth you paying the early repayment charge and clearing it now.

JayZed

I'm in a similar position and I do exactly as koexelek suggests - in a high-interest account, with a standing order to overpay £500/month. I'm enjoying watching my mortgage balance plummet. I think it's very unlikely that you'd get a better return on a savings account (outside an ISA wrapper) unless you're a non-taxpayer.

You've been advised to invest the money, though, which is a completely different kettle of fish and a different decision to make. Investing is a gamble and you need to calculate the risk and potential reward: you might get better returns in the long run from an investment - or you might lose a large chunk of your money.

It depends on your own appetite for risk. If you're risk-averse, and assuming you are a taxpayer have no other savings/investments, I would, in order of priority (a) use this year's cash ISA allowance; (b) put at least the equivalent of six months' salary into a high-interest savings account and set up a standing order to make a £500/month mortgage overpayment; (c) if you still have cash left over after this and are willing to make long-term (5+ yrs) investments, start exploring investment options.

poet123

How much shorter term would an overpayment of £500 pcm make? We currently have a mortgage which runs to 2013,and is part capital and repayment and part interest only. Total amount around £95,000.

Isleman

poet123 wrote: »

How much shorter term would an overpayment of £500 pcm make? We currently have a mortgage which runs to 2013,and is part capital and repayment and part interest only. Total amount around £95,000.

There are loads of overpayment calculators on Internet . Google it or start here http://forums.moneysavingexpert.com/showthread.html?t=155707

poet123

I have looked at the caluculators and it doesnt seem to work for me! probably doing something wrong!!

We curently have capital and interest mortgage for 50,000 and IO of approx 50,OOO mortgage runs to 2016(not 2013) and pay a total of £780(after0.5% cut). So if we paid an extra £250 pcm as a base figure can anyone work out how that would affect the term. I couldnt find a calculator which takes account of term outstanding and part capital/part repayment mortgage.

Thanks for any help.