Please help 24 April 2013 at 10:32PM in Mortgage-free wannabe 7 replies 868 views

sunnyweather_2

Mortgage Overpayment Help
I have a mortgage with Nationwide on a 10 year fixed with 31 months remaining set at 4.89%.

It will cost me £1500 to ditch the fixed rated.

I am aloud to pay £500 overpayment per month which I do.
I also put £1500 into premium bonds per month too because of the £500 overpayment limit.

I have £100,000 left to pay.

I have done the ditch the fix calulator and it advises me to change. however my question is.....

How much would I save if I ditch the fix to 2.59% where I can pay the full £2000 in overpayment straight of the mortgage compared to what I am doing at the moment?

Thanks for your help in advance!!!

jamesd

The reduced interest rate will save you £191 a month on £100,000 borrowed. Ignoring the reduction in balance that's a saving of £5921 just from the interest rate reduction over the next 31 months. The £500 a month overpayments reduce that saving by about £200 over the 31 months, so your potential gain from switching starts out at about £5721 before allowing for increased overpayments.

If you then switch to overpaying with £2,000 a month it's likely that you'll have the mortgage repaid before there's much increase in cost due to higher variable interest rates. That increase looks unlikely for at least two more years, quite possibly four or more and you'd be on track to clear the mortgage in about three years.

Given the high repayment rate it's probably not going to be worth it for you to pay high arrangement fees to get a lower interest rate on the switch. That's because you wouldn't have the lower interest rate a higher fee buys you for very long.

elantan

Have you ever considered reducing the term with the nationwide? It costs £20 and if you had it at a level where your £2000 overpayment was the norm you could still pay up to another £500 as an overpayment if you ha it spare

jamesd

Term reduction seems like a better way to go than changing mortgage, provided you're sure you'll be able to make the higher payments. Changing the term to four years would do it reasonably well, with some more payment money coming from overpayments within the £500 a month range.

There's higher risk if you become unemployed and can't afford it, which is part of why I mentioned four years and still trying to use £500 a month of optional overpayments. This gets you that £500 as an easy to stop safety margin and reduces the amount you need in a larger emergency fund to cover the increased mortgage payments.

sunnyweather_2

Thank you all for your input. I would rather not reduce the term just in case my finances change and I can not make the payments.

So it's best to carry on as I am?

You never know I might even come up on the premium bonds !

jamesd

If you don't like the idea of reducing the term it's better to remortgage and pay the fee to exit your current deal.

muddywhitechicken

The OPs I make to my Nationwide mortgage sit in an "overpayment reserve" that is accessible if I need the money, so it might be worth speaking with their Customer Services to see if your mortgage has similar T & Cs.

Also, when your fix ends do you revert to BMR or SVR? That might be something worth considering before you ditch the mortgage because BMR is capped at base rate + 2%. New Nationwide mortgages are SVR.

Hope this helps,
MWC

jimmybrid

sunnyweather wrote: »

Thank you all for your input. I would rather not reduce the term just in case my finances change and I can not make the payments.

So it's best to carry on as I am?

You never know I might even come up on the premium bonds !

Just as you are able to reduce your mortgage term now, I believe you would similarly be able to extend the term should your finances take a turn for the worse in the future.

Doing nothing different is definitely not the best course of action.