Nationwide mortgage overpayments

d712

Hello

I can make monthly mortgage overpayments up to £500 before incurring a penalty. Any overpayments that exceed £500 incur a penalty of about 3.6% on the whole overpayment.

So if I overpaid by £600 one month, I would have to pay a penalty of just over £20.

My mortgage is currently fixed at 4.8% and making overpayments without a penalty is the equivalent of putting that sum in an account offering 6% interest.

My question is: If I could afford to exceed the overpayment limit of £500, is it worth incurring the penalty? The penalty is effectively a one off and the overpayment would continue to earn an effective 6% interest in subsequent years.

I wouldn't be looking to make overpayments exceeding £500 every month because I would incur a penalty every month. I would probably do it at the start of a new tax year (after investing in ISAs etc) so there would be one penalty per year as opposed to twelve.

By how much would I need to exceed the overpayment for it to be worthwhile?

Many thanks and apologies if my question is badly worded!

dimbo61

I would just OP by £500 each and every month , save into cash ISA,s £5100 each and then put any extra into regular savers until your fix ends.
I would not pay one penny in ERC,s if I could help it.
Only my opinion !

d712

Thanks

If, hypothetically and by some miracle, I had £3000 left over, would it not be worth putting it in, paying the penalty of roughly £100 and then allowing the extra £3000 to earn an effective annual rate of 6% for the remainder of the mortgage?

The issue I have with regular saver accounts is that many of them seem to last for just a year and you have to keep going back to a zero balance

dimbo61 wrote: »

I would just OP by £500 each and every month , save into cash ISA,s £5100 each and then put any extra into regular savers until your fix ends.
I would not pay one penny in ERC,s if I could help it.
Only my opinion !

getmore4less

d712 wrote: »

Thanks

If, hypothetically and by some miracle, I had £3000 left over, would it not be worth putting it in, paying the penalty of roughly £100 and then allowing the extra £3000 to earn an effective annual rate of 6% for the remainder of the mortgage?

Not quite, for comparison purposes it only saves you up till the end of the penalty period, when is that?

Now the tax free status of ISAs do last for ever(for now).

d712

I don't know about that one! My impression from speaking to Nationwide Mortgages is that the penalty is paid there and then.

I don't know what a penalty period is or how it would work.

If I paid £3000, I would have to pay a penalty of about £100. Surely the £3000 decrease in the mortgage balance would mean that, from that point on, I would be charged 4.8% interest on an amount that was £3000 lower.

Isn't this the equivalent of having an extra £3000 in an account offering 6% annual interest?

getmore4less wrote: »

Not quite, for comparison purposes it only saves you up till the end of the penalty period, when is that?

Now the tax free status of ISAs do last for ever(for now).

uzubairu

d712 wrote: »

I don't know about that one! My impression from speaking to Nationwide Mortgages is that the penalty is paid there and then.

I don't know what a penalty period is or how it would work.

You are right the penalty is applied immediately.

My monthly overpayments have been greater than £500 for the last 20 months (since September 2008).
I overpaid £9,000 (average £750 per month) last year without a single penalty being applied.
So far this year £3,990 (average of £1,000 per month) and still no charge.

getmore4less

d712 wrote: »

I don't know about that one! My impression from speaking to Nationwide Mortgages is that the penalty is paid there and then.

I don't know what a penalty period is or how it would work.
It is set by the deal (eg: when a fixed rate end) so will be in you T&C's

If I paid £3000, I would have to pay a penalty of about £100. Surely the £3000 decrease in the mortgage balance would mean that, from that point on, I would be charged 4.8% interest on an amount that was £3000 lower.

Isn't this the equivalent of having an extra £3000 in an account offering 6% annual interest?

Say the ERC penalty is 2% today but in one year there will be no penalty(eg fix rate ends).

Then the cost s 2%
The saving is ONE years interest(mortgage-savings)

You can't count the saving forever becuase you could have paid penatly free after a year.

imperio

Just to add to the disussion - several on this forum, including myself, have effectively allowed ourselves overpayments beyond £500 per month (with no penalty) by reducing the term of the mortgage, which Nationwide seems to allow with no charge. Naturally this raises the monthly payment, which might have other implications for you.

roses

I've just started a new thread for this - Nationwide reduce your standard monthly payment if you overpay, effectively negating the impact of your overpayment. You have to call them up to change your payment back to the original amount.

Please check your statements carefully!

It states on their website that repayment mortgages (what I have), you are supposed to be given the choice:
http://www.nationwide.co.uk/mortgages/existingcustomers/overpayments.htm

With repayment mortgages you can choose whether to reduce your monthly payment ..................You will need to advise us of your preference when you make your overpayment.

I was not given this choice, I think I'll write to complain.