Advice On Mortgage Overpayment

BigDave81

Hi All

I am overpaying on my mortgage and want to make sure I have this set up correctly so any advice would be appreciated.

I am currently with Nationwide and making the maximum £500 overpayment per month. The first time this payment went through I got a letter from them advising as I have overpaid they were reducing my monthly payments.

I obviously didn't want this as I wanted the fixed mortgage amount to come out with the overpayment.

I rang them and discussed this but now they are taking the money against the term of the mortgage so instead of 20 years it's now on 17 after 1 year of payments.

This doesn't seem right to me as I was just looking in paying less interest or is this the way it is reflected i.e. lower years after fixed term ends? Surely if I just put £500 a month away and paid this against new mortgage after the fixed period I could reduce it my 'x' years anyway?!??

Hope this makes sense, I'm new to this overpayment game

adamshaw

Effectively by overpaying on your mtg you are in fact reducing the term as you are effectively paying a big chunk off the interest aswell as the capital. Thus not paying interest on the interest and reducing the term

Basically what you want to tell them is : i want to overpay £500 per month and keep the minimum (usual) payment the same. This will then effectively reduce the term

BigDave81

I think from what you say it is correct then as long as it's having an affect on the interest as still has nearly £6k interest fees for year to date which is what made me wonder in the first place.

Jonbvn

adamshaw wrote: »

Effectively by overpaying on your mtg you are in fact reducing the term as you are effectively paying a big chunk off the interest aswell as the capital. Thus not paying interest on the interest and reducing the term

When you make an overpayment, you automatically reduce the capital. All interest is covered by the regular monthly payment (with some capital reduction). You should never pay interest on interest, unless you have taken a payment holiday.

adamshaw

True. i didnt quite mean it in that context. you would reduce the capital by paying extra, hence reduce the interest you pay meaning you would have saved interest been added to the loan, thus not paying interest on interest

Curveygirl

I've also just had an odd conversation with Nationwide about my overpayments.

Originally I had a 5 yr fixed rate, but still made occasional small overpayments mainly cos I was terrified of how much I was gonna have to pay when the fix ended. The overpayments didn't come to much, and I must admit I wasn't really sure how it worked, overpaying on a fix, so was just happy that I had reduced the debt by a miniscule amount when I wanted to move (inevitably, a bigger mortgage).

That mortgage ported to the new house, and was topped up with a second one as the new house was more expensive.

I then made only about £30.00 overpayment (as I had a bigger mortgage), and eventually that fix ran out, was followed by another fix on both mortgages (don't ask me why it has to continue as 2 mortgages, instead of 1).

In the spring this year, that fix ran out and I finally got a reduced rate (yippee). Fixed was good for me at the time I had it, but now, due to the mortgage dropping by the best part of £200, I am making regular overpayments by continuing to pay the old amount. I have been doing this for a few months now, and was hoping that I would see a reduction in monthly payments (which I would of course top up again to the original amount).

With this in mind, I was planning on ringing Nationwide, and asking what happens, but had been putting it off due to not being able face the call centre queue (minimum wait in the past has been 25 minutes).

Anyway (I am getting to the point -honest), Nationwide customers got a letter today reminding them they can make overpayments, which will reduce the monthly amount, or they can ring up and ask to reduce the term. Well, I braved the call centre (it got answered straight off!!!!), confirmed that I had understood the letter correctly, & asked what was going on as I hadn't noticed that my payments had reduced (even by a few pennies). On checking my 2 mortgages, the nice lady told me that yes she could see my payments, and that 1 of the mortgages had been overpaid by the equivalent of about 6 months instalments (the other not that much). However, she told me that this had NEITHER reduced the term NOR reduced the monthly payment. I asked her if it was just that I hadn't paid enough, and that it would take longer to make an impact. She said no, the account just hadn't been recalculated, and she would need to get that done for me.

Now I realise (I think) that even if Nationwide haven't done anything to take into account my overpayments, I would eventually end up paying off the amount at an earlier date, but I just can't get my head round it. She said that she will get a recalc done and get the monthly amount reduced this time, but I must ask them to recalculate every time I make a payment (that's 2 payments a month). This is because no one payment is £500, and therefore it won't be done automatically (!?).

I think my question is: if I had not rung in today, and just carried in paying, what difference would have made to my mortgage? I did ask this question, as I have a sinking feeling that, whilst the payments were 'showing' on my account, they were having no impact at all on the interest I will be accruing over the next 18 or so years. Needless to say, I didn't really get an answer.

Anyone who has magaged to understand this ramble, might also have a clue what it was the lady from Nationwide was trying to tell me.

Joe_Bloggs

You can as a Nationwide mortgagee with flex account (not sure if this is essential) view your day to day mortgage balance, online . This account is updated daily in response to mortgage overpayments and mortgage interest. The overpayments take typically three working days to take effect.

You tend to get to understand the ins and outs of financial products when you have first hand experience of them. This level of experience/understanding should not be expected of telephone or counter staff who have no direct dealings with these products on a day to day basis.
J_B.

Thriftyknickers

Hi Curveygirl,

If you make a £500 overpayment, they recalculate your payment or adjust your term automatically - depending on which you've gone for. I think the default is recalculating the payment. If you overpay by less than £500 each time, I think this gets picked up when they do your end of year statement. No worries though - as they use a daily interest rate you don't 'lose' any benefit of the overpayment. Plus I agree about monitoring using the Nationwide online bank - then you'll be able to see exactly what is happening for yourself.

uzubairu

Thriftyknickers wrote: »

Hi Curveygirl,

If you make a £500 overpayment, they recalculate your payment or adjust your term automatically - depending on which you've gone for. I think the default is recalculating the payment. If you overpay by less than £500 each time, I think this gets picked up when they do your end of year statement. No worries though - as they use a daily interest rate you don't 'lose' any benefit of the overpayment. Plus I agree about monitoring using the Nationwide online bank - then you'll be able to see exactly what is happening for yourself.

That's what I love about my mortgage.
I just have my mortgage with Nationwide and applied for online access.
I overpay £500 by standing order, so I get a letter every 3/4 months with an updated end date.

It updates just after midnight each day, and I can see the daily interest amount change the day after an overpayment is credited to my account.

Curveygirl

Thanks for the advice (& sorry for hijacking your thread, BigDave81)