Another Nationwide overpaying Q

wooders

Apparently with Nationwide you can overpay up to £500 per month as per previous question.

Next Q is ( as they give you the option )

Which is better,

To overpay and thereby pay off more interest, thus lowering the monthly payment ( its calculated daily )

OR

To overpay at the same rate / amount in order to reduce the term of the mortgage??

Can anyone tell me the benefits / pitfalls to both. My circumstances atmo mean I would like to shorten my mortgage term from 14 yrs to at least 12yrs. But hope someone can assist

thankyou

beecher2

Shorten the term, as long as it doesn't cost you anything to do so. There's really no advantage in lowering the payment, especially when you're already planning to overpay the maximum allowed.

smcqis

If you can easily afford monthly payments reduce term, if you think you might struggle with your monthly payments in future then reduce these not term, though unlikely if you can overpay

KarenBB

beecher2 wrote: »

Shorten the term, as long as it doesn't cost you anything to do so. There's really no advantage in lowering the payment, especially when you're already planning to overpay the maximum allowed.

There's no charge to reduce the term BUT if you want to extend the term at a later date (if you want to reduce the payments or because you've borrowed back some of your ovrpayment) they will charge you to extend the term (currently £20). I overpay by just under the £500 so the interest is reduced but the payment isn't changed or the term. Effectively the mortgage will be paid off sooner but I haven't offially reduced the term so no need to extend if I want some of the money back to replace the boiler.

getmore4less

If you reduce payment then the normal payment goes down(slowly) over time thus reducing the max amount you can pay during the penalty period.


Both methods reduce the amount of interest paid by the same amount for the same input of money.

CLAPTON

wooders wrote: »

Apparently with Nationwide you can overpay up to £500 per month as per previous question.

Next Q is ( as they give you the option )

Which is better,

To overpay and thereby pay off more interest, thus lowering the monthly payment ( its calculated daily )

OR

To overpay at the same rate / amount in order to reduce the term of the mortgage??

Can anyone tell me the benefits / pitfalls to both. My circumstances atmo mean I would like to shorten my mortgage term from 14 yrs to at least 12yrs. But hope someone can assist

thankyou

when you overpay, you pay off capital
because there is less capital owing then the interest will be reduced
if you maintain your 'normal' monthly payments then even more capital will be paid off each month as less goes on interest

cashandassetpoor

Do you only have one mortgage account? As the £500 monthly overpayment is on an account level basis ie 2 accounts £1000 3 accounts £1500 etc. as long as not more than £500 goes to each account.