We want to be Mortgage Free

Lizzy69_2

Hi all :hello:

Today DH called Nationwide to set up a regular overpayment. Now it's only a small amount (approx £30) which is basically the amount that the rate has dropped by.

We thought that by overpaying it may reduce the term, however the lady said that this small amount would have little impact but by drip feeding it wouldn't do any harm.

This left us both pretty deflated as we thought it would be a good thing overpaying. It is isn't it????

We have 11 years left and hoped this would make a small reduction on the capital.

Incidently, we paid a small amount a few years ago and only found out today that this sat in a "credit reserve" and the overpayments that we are going to be nmaking will also sit in there. Does anyone know how long will it sit there for?

Any help/advice greatly received

VfM4meplse

From little acorns...

If it looks like you will be able to overpay on a regular basis consider an offset plan for your next mortgage product. £30pm isn't much but better than nothing as interest rates aren't doing savers any favours. It's a case of balancing the penalties for exiting vs £360pa capital paid off. This credit reserve seems like a big con.

StuartGMC

Is the "credit reserve" a facility so you can withdraw these overpayments, yet, in the meantime they are "offsetting" against capital thus reducing the interest charged?

Offset may work in future, but you need to look at the finances and the relative interest rates. For us it works well and the spreadsheet I use gives me the effective interest rate we're paying on the mortgage, accounting for the loss of interest gained from saving etc. I think that offsetting still needs you to have 10-15% of capital saved to offset to make them viable, but, that may be lower now interest earned on savings has dropped a lot?

I would recommend you offset with both savings (some deals will include Cash ISAs too) and current a/c because the latter when you are in the last £30k or so can be say 5% of what you owe and it'll earn nothing in interest itself. If you are able to manage your finances well, you can shift all spending to the credit card(s) provided you pay in full without miss at about 5 working days before due. Then the cash sits there offsetting for you through the full month.

Best wishes in reducing your term and the journey to get there.

MarkyMarkD

It is not worth remortgaging to an offset arrangement, unless you would be remortgaging in any case.

As the OP was talking about overpaying £30 a month, I don't think that an offset is going to be worthwhile for them.

But every pound overpaid is a pound off your mortgage balance, and that's worthwhile whatever the Nationwide staff member said.

Welshlassie

Your "credit reserve" sounds like my "built up" reserve and is offset against the capital of mortgage. It works the same as if it was paid off the capital, but can drawn it back if you need it or use it for a payment holiday.

To find out how much you would actually save in time and interest over the remaining mortgage have a look at an overpayment calculator I like the egg one.

Every little helps, we started off with just £10 per month.

RosieTiger

Not worth bothering to pay £10 - what poor advice this is.

It all counts pay the £10 and remember - they would say that wouldn't they

aliasojo

Lizzy69 wrote: »

Incidently, we paid a small amount a few years ago and only found out today that this sat in a "credit reserve" and the overpayments that we are going to be nmaking will also sit in there. Does anyone know how long will it sit there for?

Different lenders have different criteria. With ING, the over payment mounts up until it is a minimum of £1000 then you can phone and ask for it to be used as a capital payment to your mortgage iyswim.

Having said that, my overpayment pot is a shade over £2k now, I've never bothered phoning them to have it used as a payment and as it is offsetting the interest, it doesn't really matter anyway.

clarew

We are with nationwide, and overpay by £40pm, on our mortgage statement the total amount we have overpaid by for the year is shown as a credit reserve, which means you can withdraw it at any time. However when its in there, you are reducing the amount of interest you are paying on your balance, and interest is calculated daily. £40pm extra over 22yrs is saving us thousands and would finish our mortgage 19months early (at £1k per month thats no small amount to us!).

We also add odds and ends as we can, overpaying £4 or £200 on top when we are able.

You can register for online banking with nationwide which shows you your mortgage balance and enables you to transfer money to your mortgage online and delight like i do when i see its got there a few days later.

Don't be put off, it does all help, and oh was amazed a few years ago when i showed him what even £10 a month op would do in the course of 22yrs...and we all know we could easily spend £10 a month on rubbish instead!

blueberrypie

Lizzy69 wrote: »

We thought that by overpaying it may reduce the term, however the lady said that this small amount would have little impact but by drip feeding it wouldn't do any harm.

You don't say how much your mortgage is or what the term is, but as an example - if you had a mortgage for £100k over 25 years at 5%, and you paid an extra £30 per month, you'd pay it off in 22 years 9 months, and you'd have saved yourself nearly £8000 in the end. I don't know about you, but if someone came up to me and told me I could make £8000 with very little effort, I wouldn't be sniffy about it!