Overpayments

freddykrueger

I have a very quick and (hopefully) simple question. I have a mortgage with the Nationwide and have a tracker product whereby I can make unlimited overpayments.

However when you go into the overpayment section it gives me a choice of what I would like to do if I make overpayments - choices are to a) reduce monthly payment or b) reduce term

Are there pros and cons to each - my 1st instinct was to go for term but I'm not so sure!!

kingstreet

What do you want to achieve?

Lower payments, with the mortgage being repaid over the current term, or the same monthly payments with the mortgage being repaid over a shorter period?

freddykrueger

I think I want it paid off more quickly but I really wondered if there is any material difference in these choices - if I was to look at repaying over say 10 years?

I suppose I could lower repayments whilst at the same time still make overpayments? I just wanted to check if there was a "better" choice.

I should add that I regularly overpay each month but this seems to be reflected neither in the term or the payment - it seems to be that they only change the term or payment if you make an overpayment of £500 or more in a month.

egoode

I always thought that reducing the term reduced the amount of interest you pay whereas reducing the monthly payment won't do that.

freddykrueger

If that is the case then that is the option I would probably elect for to be honest

whitewing

I would reduce the term. I assume the mortgage is fairly new and therefore based on recent affordability anyway. Do you have a plan for if you eg lose your job or so on.

If you reduce the monthly amount there is a danger that you will get used to a lower payment. (We remortgaged to a lower payment with a view to making overpayments too. It isn't quite working out at the moment as we're not making overpayments. We're still saving money of course).

dimbo61

Yes reduce the term as that way you will
1 pay off the mortgage sooner ( Mortgage Free in 10 Years :-) )
2 Pay less interest to your lender
3 Build up equity in your home if you need to move!
4 You can always reduce your mortgage payments if things get tough ( Loss of job, no overtime, OH goes part time ETC)
5 You have made your "normal mortgage payment" without any problem so why reduce the payment OVERPAY on top

freddykrueger

whitewing wrote: »

I would reduce the term. I assume the mortgage is fairly new and therefore based on recent affordability anyway. Do you have a plan for if you eg lose your job or so on.

If you reduce the monthly amount there is a danger that you will get used to a lower payment. (We remortgaged to a lower payment with a view to making overpayments too. It isn't quite working out at the moment as we're not making overpayments. We're still saving money of course).

I took the mortgage out 2 years ago with Nationwide - its a Tracker currently at 3.5%. The regular monthly payment is £547 but we regularly pay £750 per month and try and make overpayments as and when we can.

I am currently looking at better deals on the market as I have no tie in - just trying to make things work well for us.

whitewing

If you are regularly making £200 overpayments as part of your usual monthly payment, then they are already reducing the term presumably, so any unscheduled overpayments will do the same?

freddykrueger

whitewing wrote: »

If you are regularly making £200 overpayments as part of your usual monthly payment, then they are already reducing the term presumably, so any unscheduled overpayments will do the same?

Strangely.....no. It seems that they only send me a letter reducung the term if I make an overpayment of £500 or more in any month.

Ivrytwr3

you SHOULD get a yearly statement that will reflect the lower that £500 overpayments.

And yes, reduce the TERM not the PAYMENT!!