Nationwide Repayments

drevilc

Hello All, just wondering if I was doing the right thing or not?

I have two interest only mortgages, £32.3k & £13.6k, both with Nationwide and on variable base rate (0.5%) which is currently alot better than the (5.99%) fix I was on. Not planning on ever moving house.

Currently I put aside £400 per month aside, minus the interest approx (£67 + £28 = £95) and put the remaing £305 into a savings account, then the next month when I have £610 I pay off one mortgage. Nationwide then reduce my interest amount instead of the term. The interest goes down about a few quid or so. I up the £305 amount, and repeat the process to the other mortgage.

The question is, financially which would be more beneficial,
to work on paying off the larger mortgage first,
or possibly pay each mortgage £150 each month and when I can pay £500 reduce the interest rate.
or am i doing the right thing now.
or maybe another idea?

Thanks.

Morgage_Confused

people on here will actually advise you to pay off neither mortgage. this is bacause you will get better rates of interest by putting your "overpayments" into some other investment like an ISA for example.

Thrugelmir

If you can better your interest rate by saving into an instant access ISA that's probably your better option.

Joe_Bloggs

The interest looks like the 2% above base rate Nationwide BMR.

Overpay the 33.3K mortgage by 218 pounds per month
Overpay the 13.6K mortgage by 92 pounds per month.
Both mortgages are paid in 10 years 8 months
I do not see the need to save up for two months before
overpaying. Overpay when you have the money.
J_B.

drevilc

Thank you for your comments. Although I know the interest rates are better in an ISA. I would like to pay this off ASAP.

Joe - I take it this is based on a percentage split. The only issue is, if my monthly overpayment is under £500 the interest is not reduced until a overpayment is over £500 is made in one month.

Maybe if I did the split into a saving account as you stated and 218 x 3 months and pay of £33.3k with £654 and 92 x 6 months to pay off £552 to £13.6k. Then Nationwide reduce mortgage interest on both mortgages and the residue fund increases.

Just wondering which way means i pay less interest? Thanks

milanos

I think the interest should be calculated daily, so whatever you pay will mean that the interest from the following day will be less. Nationwide can amend your payment amount to take into account the overpayments, however this doesn't really need to be done at all, it just gives you a more accurate view of exactly how much you are paying goes to reduce the mortgage and how much is in interest

KarenBB

from Nationwide website

If you overpay by less than £500, your monthly payment will be reduced at the next rate change. Your interest is calculated daily, so your overpayment will still reduce your balance immediately and you'll start to be charged less interest, but your monthly payment won't reflect this straight away.

So your interest will be reduced when you overpay so you benefit immediately but your payments will stay the same until the next rate change or you overpay by £500 or more as a lump sum. If you kept you payment at £305 and your interest was only £303, your payment would be £303 paying off the interest and the £2 reducing tha capital. Must make my mortgage payment now.

drevilc

Thank you for your comments. So I'm thinking of paying each mortgage each month and although my interest rate will not reduce because I am underpaying, in theory it will be as it is gradually reducing.

It is easier in my head than in writing, but I get it, thank you for your help, much appreciated:beer::j:T:T

Joe_Bloggs

@drevlic
Your interest rate is the same as mine. It will not be changed by making overpayments. The amount of interest you are charged is based upon how much capital you have left to pay.

I suspect that the amount you are charged also has a direct debit that will need to be modified downwards month by month for a totally accurate system of interest charges. This change is unnecessarily bureaucratic for both parties and I suspect is avoided by not triggering the 500 per mortgage threshold.

I made assumptions that you were happy with the current amount you were paying and wished to continue paying that amount given the present interest rate. I also assumed that the term of the interest only mortgage was more than the ten years eight months that you are on target to pay off (at present rates).

I also added 5 pound per month as I can't add up.

The ball is in your court. You can mould an interest only mortgage to be a repayment. The key is not to forget/neglect to save the capital. Also do not fixate on making overpayments when you have debts at a higher interest rate than the mortgage rate.

J_B.

DVardysShadow

drevilc wrote: »

Thank you for your comments. Although I know the interest rates are better in an ISA. I would like to pay this off ASAP.

It will be possible to pay this off more quickly if you save into an ISA

Joe_Bloggs

@DVardysShadow
Here is your chance to play 'Name that ISA' . I face the same BMR rate and I have ISA money to move and am on the way to building up a chunk of new ISA money.

Quite often I find to get the best rates you have to tie up a chunk of capital for a fixed period for a fixed rate. Eg Halifax will give you 4.3% fixed for four years. This may or may not be competitive with Bank rate plus 2% in the future.

J_B.