Can someone explain mortgage overpayments to me?

clairecymru

We currently have a mortgage with nationwide for the following:-

£82,000 - fixed rate 4.2% which will come to the next month and go down to the BMR which is currently at 2.5% (2% over the base rate).
The monthly payment on this is £414.24

We also have extra borrowing of £13,000 which is currently at 5.9%. This is for 3 years and then will go the nationwide's SVR which is at 3.5% I think?
The monthly payment on this is £74.75.

Both are over 30 years.

I had a look at the overpayments on nationwide's website and it says the following:-

Overpayments let you pay more than your usual monthly repayment. Any payment in excess of your normal monthly payment will reduce the balance of your mortgage and you're charged interest on the lower balance from the following day.

If you make an overpayment of £500.00 or more you can choose to:

-Pay off your mortgage earlier by reducing your mortgage term. (This option is only available if you have a capital and interest repayment mortgage).
- Reduce your future monthly repayments.
- Keep your existing payment and term 'as is'. At the next natural mortgage payment change, for instance an interest rate change, your repayment will be automatically recalculated.
If you don't make a preference, we'll automatically reduce your future monthly payments.

If you overpay by less than £500.00 you can’t set a preference; the balance of your mortgage will reduce and you will be charged interest on the lower balance from the following day. At the next natural mortgage payment change, your monthly payment will be recalculated to include any overpayments you have made.

I want to make a regular monthly overpayment of £100 a month. Am I better off making it on the big mortgage or the little mortgage and how will it affect how quickly I pay it off?

Morgage_Confused

always the higher % first.....so dont overpay the bmr at all.

clairecymru

But how will it work. I want to pay it off quicker but it says that my regular mortgage payment will be reduced. Is that right?

MarkyMarkD

No. Your regular mortgage payment will be reduced, taking account of the overpayments, only when there is a rate change. Until then, your payments will remain the same and you will progressively repay more capital each month, because your interest charge will marginally reduce as a result of each overpayment.

As your 5.9% rate is fixed for 3 years, your payments won't change for 3 years and during that time, you'll have paid off more than your £100 a month because of the interest savings.

Sammie_UK1

Your monthly payments are made up of capital (the money u borrowed) and interest on the money u borrowed. The more u borrow, the higher the interest part of the payment. Any overpayments offset/go towards ur capital, thus reducing it, so the interest on this reduces meaning not only do u payback the money u borrowed quicker, but u also reduce the total interest u paid on it too.