Beware of a Catch with Overpayments on Nationwide Mortgages

Ystrad_Lad

I've just fallen foul of a rule on overpayments which I've never heard of before.

Unless the overpayment is £500 or more, it cannot be used to reduce the term of the mortgage. I have a fixed rate motgage and I cannot pay more than £500 without incurring a penalty. So in other words, I have to overpay exactly £500 per month in order to reduce the term.

Before making any payments I called in to my local Nationwide branch to check the rules and this wasn't mentioned. I have not seen it written anywhere and, until I got a letter from Nationwide this week, I'd never heard of it.

Has anyone else come across this before?

Gary_zero

I have a discounted NW mortgage and I was also told that a minimum overpayment was £500 but you do not have to overpay by £500 every month, you can make a lump sum payment whenever you want so if you wanted to overpay £100 per month save it for 5 months and pay in a £500 lump sum. Also if your circumstances change you can claim back your overpayments at any time.

ab7167

Is this a new rule? Because I have a Nationwide fixed rate mortgage and overpay, have never heard of this?

Ali

ab7167

I have just had a look at the Nationwide website, and it clearly says that if you make an overpayment of LESS than £500, your monthly payments won't change. I read this to mean that the term is REDUCED, as you owe less capital, but are making the same payments every month. If you pay MORE than £500, they recalculate the payments, therby keeping the term the same?

If I have misunderstood, please could someone correct me, as this will affect my plans for paying off the mortgage.

nrsql

Suspect the term isn't reduced.
Probably you will be overpaying each month due to paying less interest and when the overpayments reach £500 (or maybe an anniversay or rate change) the payments will be recalculated to keep the same term.

Ystrad_Lad

I am as much in the dark as everyone else here. I've written a letter of complaint to Nationwide today and asked for further clarification. I will let you know what they say.

pollyanna24

I have a 35 year mortgage. I took this out with the idea when in 10 years or so when things got easier, I could reduce the term. Didn't realise there would be a reason why I couldn't do this.

I overpay every month to the tune of approximately £150. I can see my balance go down by that much online, but assumed that until my two year fixed rate was up that nothing would change, i.e. payments or term.

Surely if you carry on overpaying, the term would have to reduce, as eventually the mortgage would just be paid off and there would be no reason to keep giving Nationwide a monthly payment. I'm probably missing something obvious here.

EDIT: I must say that at the moment, cos I'm soooo far away from discharging the mortgage, my main aim is to try and have a lower payment by the time I end up popping out sprogs, so the fact that the term wouldn't change doesn't necessarily bother me at the moment. Just trying to get the mortgage balance down would be a good start!

ab7167

right, have spoken to Nationwide.

If you phone them and ask, they will put a marker on your account that will ensure that all overpayments of however much will go towards term reduction rather than payment reduction.

My concern was that they would reduce the payment required, thererfore I might accidentally pay more than £500 more that the required payment and therefore be hit with an early repayment charge. Nice bloke confirmed that as long as you don't pay more than £500 more than the DD amount called for, there will be no early repayment charge, and they will not change the DD amount except at an interest rate change. However, you can call them anytime and tell them what you want the DD to be. This effectively reduces the term (if you increase the DD!).

any clearer?

A

nethesi

hI op, DON'T PANIC!! Actually they do effectively reduce the term they just don't send you a nice letter saying how much you've knocked off. This is because Nationwide calculate the interest daily on your account. This means that even if they don't recalculate your payment term immeadiately (which they only do if you overpay by £500, whcih is naughty) then the amount of interest you owe reduces and thus the amount on the term reduces too. This means when they do get around to recalculating your repayment term (e.g. because you've made a £500 overpayment) then this will take into account any overpayments you have made before this.

It is what happened to me when I made my 1st 'big' £500 overpayment after a few little ones.

The real catch is that unless you tell them otherwise they will use any overpayment of £500 or more to reduce your payments not the term which for most people on this page is not what we want! Howeer when they do they send you a letter and you can easily ring them up and reverse this and set up that in the future it will reduce the term!

bootman

Just to add when you get your year end statement, It usually adjusts the term a bit more if you have been paying odd bits and bobs, As its the year end. It just works it all out for the remaining balance. Year end statements usually arrive sometime in January.

UKJubilee_2

I remember when I took out my mortgage with them they said about overpayments of over £500 in a month incurring an early repayment charge. They did say that upto £500 was excempt of this AND if something bad happens and you can't afford to pay for a bit you can use any of your overpayments to take essentially a "payment holiday".