Reducing the term (Nationwide)

imperio

We have a mortgage with Nationwide, approx 140,000 outstanding on a house bought for 200,000 in November 2007. We're just over a year into a 3 year fixed deal at 5.98%. This allows overpayments of £500 per month, which we've made every month since the start of the deal.

We'd like to overpay more, but $500 is the limit per month (without incurring penalties). I'm told that we can reduce the term of the mortgage without charge, and also re-extend it without charge at any point. (The original mortgage was for 150,000 over 25 years.)

Of course if I could find a savings account beating 5.98% I should just stick the money there, but in the absence of such an account, is there a reason why reducing the term is a bad idea? (In particular since we budget to overpay by £500 anyway.) We want to have as little as possible remaining when the fixed term runs out (when interest rates will probably be huge and the house worth very little!).

Thanks in advance for advice and comments.

CovKid_4

We have a Nationwide mortgage and the mortgage man at our local branch told us that the term reduction is a very useful perk, and that they keep fairly quiet about it - I don't think there are any particular catches, except that if you later find you need the cash that you've ploughed into the mortgage, you won't be able to get it back without borrowing more (apart from the £500/month which remains available as your overpayment reserve).

JayZed

Reducing the term is definitely a good idea, better than reducing the monthly payment. You should phone Nationwide, inform them that you wish your overpayments to reduce the term rather than the monthly payment, and ask them to set your required monthly payment at the original level - i.e. at the required monthly payment that you were making at the start of the deal (so that you are paying more off each month than you are now).

imperio

Thanks for these - JayZed, just to clarify, we're already reducing the term while overpaying. In effect I want to increase my monthly payments by explicitly reducing the term (for example, recalculating the payments over 15 years rather than 25 years), whilst retaining the ability to overpay the maximum £500 allowable.

CovKid - they do seem to keep quite about this!

JayZed

Oh, I see - I didn't realise you could do that! Very useful to know.

sharynm

imperio wrote: »

Thanks for these - JayZed, just to clarify, we're already reducing the term while overpaying. In effect I want to increase my monthly payments by explicitly reducing the term (for example, recalculating the payments over 15 years rather than 25 years), whilst retaining the ability to overpay the maximum £500 allowable.

CovKid - they do seem to keep quite about this!

:T exactly what I did with the Nationwide. I took out 25 year mortgage when I bought the house 5 years or so ago, and then because i could only overpay £500 without penalty, I did that, and then also reduced the term right down...more towards what i could afford to pay every month. As i earn commission fairly steadily every month, I pay a fairly high amount (no kids and no expensive hobbies!!! because of this my whole mortgage will now be paid of in 12 months - so 7 years to pay off my £165 mortgage and i didn't actually reduce the term down until after the first 12 months of having the house.

I've always had this awful fear of somebody taking my house away for some reason, so my priority was always to pay it back as fast as possible!

so in answer it's a great idea and i'm really pleased I did it back then - my fixed rate also runs out in July so hopefully the last six months of my mortgage will be less than the damn 6% or so that i fixed at a year and a half ago :j

don't think they would be too chuffed though if you keep moving your term in and out if your ability to pay keeps changing

uzubairu

imperio wrote: »

Thanks for these - JayZed, just to clarify, we're already reducing the term while overpaying. In effect I want to increase my monthly payments by explicitly reducing the term (for example, recalculating the payments over 15 years rather than 25 years), whilst retaining the ability to overpay the maximum £500 allowable.

CovKid - they do seem to keep quite about this!

That's what we are doing too.

Took out a 10 year fixed rate (4.79%) in July 2006, we had already been paying £500 per month by standing order, but we wanted to pay off even more each month.

We've reduced the term remaining by 10 years since October 2008 (reduced in October, December and January £646 to £765 to £891), and we plan to have it paid off in full by 2016 when the fixed rate ends.

We'll be reducing the term again later on this year.