Reclaiming early repayment fees

laughing_gravy_3

We currently have a nationwide mortgage on which we are paying interest of 6.19%, five year fixed-term ending on 31/12/12. We made an over payment of £11,000 in one month last year, significantly above the £500 limit you are allowed to overpay each month without incurring an early repayment fee (in addition to this we make £500 over payments each month). As a result we incurred an early repayment fee of £550 which we were aware at the time, would be the case. This made financial sense because last year saved interest at 6.19% on the £11,000 i.e. £680 and again we make the same saving this year - total saving therefore around £1360. Less the 5% early repayment fee of £550 = net savings £810. We elected to reduce our mortgage term and to continue to pay the same monthly mortgage amount, in addition to our monthly over payments

The compares to the best ISA rates of around 3% which over 2 years would generate only £670 interest.

My question is, in December 2012 before my fixed-rate deal expires, by drawing £11,000 out of the over payment reserve, does this automatically mean that the over payment fee becomes refundable? If yes, we would then simply pay the £11,550 back over in January 2013 after our current mortgage deal expires, without incurring any early repayment fees.

We are planning to stay on the variable rate once our current mortgage deal ends, which currently would only be 2.5% and will continue to make over payments, clearing our mortgage in December 2013.

I only realized, after seen other postings that the other option at the time would have been to ask nationwide to reduce our mortgage term, pay the fee of say £50 for them to do this and pay a significantly higher monthly mortgage payment until the end of our mortgage term.

Thrugelmir

laughing_gravy wrote: »

My question is, in December 2012 before my fixed-rate deal expires, by drawing £11,000 out of the over payment reserve, does this automatically mean that the over payment fee becomes refundable?

The answer is no unfortunately.

Wutang_2

What did Nationwide say when you asked them this?

_Andy_

Wutang wrote: »

What did Nationwide say when you asked them this?

A silly idea Wutang. Much better to get advice from a total strange who may or may not be right.

Dave_the_Ginger_Cat

You may still have saved yourself the most money the way you have done it. A lump sum repayment starts benefitting you immediately as the interest is charged on the oustanding balance. Any withdrawal against a reserve would of course start charging increased interest levels.

It's hard to work it out without knowing your balance and your tax rates. Given the rate of 6.19%, my gut feel is that you have done the right thing.