Nationwide "semi-flexible" loop-hole

timodell

This may have been widely discussed here before, but it is a new discovery for me. As a longstanding Nationwide mortgage holder, I have tended to move from one 2-year deal to the next, taking the best tracker or fixed rate each time and using the roll-over point to make a net redemption without incurring early repayment charges. In doing this I take advantage of the little publicised facility that allows you to make unlimited over-payments in the last calendar month of any deal without incurring any early repayment charges. What I didn't realise until today, is that each time I have done this, the over-payment has been credited to a so-called "overpayment reserve" that is then available to be drawn-down in much the same way as a in a fully flexible mortgage. Not only that, but the rate that is charged on this extra borrowing is the same as the rate you are on at the time, even if that is a fixed rate deal that is no longer available! In other words, you can borrow, say, £500,000 then repay £250,000 after 1 year 11 months. Then if you roll-over the £250,000 at either a 2-tracker rate of base-rate - 3bp or a fixed rate (currently 5.44%) you have the option to borrow up to £250,000 at the same terms at any time in the next two years. Compared with fully flexible Base Mortgage Rate of 6.74% this is a very easy way of keeping some emergency money handy. The only disadvantage, of course, is that you can't subsequently reinvest any of this cash until you get to the next 24th month roll-over window.

Still this is a very handy feature, particularly if you want to park some spare cash in a very tax efficient way, but still have almost instant access to it at very cheap terms. Indeed, if you correctly opt for a fix and rates go up, you could even potentially borrow more at the original fix rate and then reinvest on behalf of a non-tax paying spouse in a higher fixed rate bond and earn a risk-free margin on interest up to the basic rate allowance.

To my mind this is a fantastic feature.