Overpayment - What would you do?

JimmyTheWig

SOMEONE wrote: »

I need to ask and get in writing exactly what I'm entitled to back, whether it's just the monthly overpayments, the lump sum or both. Once I have that info I can judge whether or not pay the £50K sitting in my bank into loan 1 too.

I agree.

It's 1st March tomorrow, so I was due to overpay £500 into both Loan 1 and Loan 2, but will now leave loan 2 alone for a week until I have more info.

I agree. Obviously if you can get it back and the right answer is to pay the £50k off loan 1 then the right answer with this £1000 would be to pay it all off loan 1.

If I can borrow back from from loan 2 it will only be the £3000 to date, so not a huge amount that'll cost me 90 quid to pay into loan 1 instead.

What's the advantage to borrowing this back no as opposed to borrow it as additional when I switch loan 2 to the 2.29% deal?

We've already established that it's worth paying the ERCs to reduce loan 1 at the cost of loan 2. So as you say it's a question of getting this £3k back now to pay off loan 1 or do it in three months time. In both cases you'll pay the same ERCs, so we can ignore them.
The question is what's the difference between interest at 5.34% and interest on 3.69% on £3,000 for 3 months?
At 5.34% it's £40.05.
At 3.69% it's £27.68.
So by claiming the overpayment back now rather than waiting until you increase the borrowing you save £12.37.
Your call on whether it's worth the effort.
You might want to factor in the fact that the £3k will be sat in no-mans land for some time whilst it is being transfered.

JimmyTheWig

SOMEONE wrote: »

I think the rest of it may just confuse me and i'll mess something up costing me thousands

It sort of depends on whether you want to do this as an academic exercise / for the personal satisfaction of paying the least interest / giving the banks the least money, or if you are just interested in the effort and the money in your pocket.
Because with all these tricks we are only talking about saving a few hundred pounds (I believe, from memory).
If that is small change that you'd rather not fret about then pay the £50k off loan 2 in three months time and be done with it. You won't need to claim back overpayments in the future. There would be little point in changing loan 2 onto a lower rate as there wouldn't be much owing. You could continue to pay your £500 a month off both loans.
A simple life for the sake of a few hundred pounds.
Your call.

SOMEONE_3

Yes, I've figured that I'm not going to cut a huge percentage off what I owe, and I am definitely into trying a few tactics to increase the benefit to myself. It's just trying to figure out the savings of each element and deciding which are worth the hassle. £12 might not be, but several £12s combined would be.

I think paying 50K off loan 1 and over borrowing on loan 2 to reduce the interest being paid on loan 1 makes perfect sense. The alternative is to switch loan 1 as well but we've already established that forfeits the future BMR and possibly the ability to borrow back in the future. I'm starting to think it's wise to keep to both the old loan 1 and new loan 2 running to take advantage of the good aspects that both of them have.

I think I have a bunch of question to ask NW next week now, and I may as well include in that how much more I can borrow when I switch loan 2. It's Catch 22 a little bit too. whilst I would need to pay the £50K into loan 1 before I got there, so that they can give me accurate additional borrowing figures, I probably shouldn't in case this whole borrow back deal isn't available.

The maths tell me now that £50K off of loan 1 even if paying ERCs is better than paying off loan 2 when I can switch loan 2 to 2.29%. And I now know I can improve that further with the methods you've shown me to pay them off against each other. So my main question has been answered, superbly, so thank you.

Hopefully this time next week I'll have a bit more precise info to come back to you guys with

cheers!

SOMEONE_3

ps. Shame that switch and fix didn't apply to my loan 1. It would've been nice saving £700 a year and not paying a single penny in fees, and that's even before moving loan 2 to something cheaper

SOMEONE_3

Nationwide branch has just been on the phone. After talking to him he says I don't need the appointment in branch unless I'm switching loan 1 to a new product. Which I'm not now so I've tentatively cancelled.

I managed to ask him some questions though.

Every product based on the old BMR (pre 2010) is applicable to borrow back on overpayment. None of the post 2010 SMR based products are, so the only product I can borrow back on it loan 1, and he confirmed that was £64thousand-odd.

He confirmed that my paperwork will state the above, and that I do not necessarily need to borrow back within the 3 years, I can borrow back everything I've overpaid even once i'm on the BMR after May 2017, and it'll all be borrowed at that base+2% rate.

So assuming I use this £50,000 to overpay and the associated ERCs, and over borrow on the new loan 2 tracker to clear some more of loan 1, how much should I leave in loan 1 now? I don't have to leave much since I can over pay as much as I want into the new loan 2 tracker without fees, so I assume it's just a minimal amount but I need to make sure it doesn't pay off in full before the 3 years is up.

All this borrow back is subject to passing checks and applications etc at the time, but I can't see those being a problem

JimmyTheWig

SOMEONE wrote: »

So assuming I use this £50,000 to overpay and the associated ERCs, and over borrow on the new loan 2 tracker to clear some more of loan 1, how much should I leave in loan 1 now? I don't have to leave much since I can over pay as much as I want into the new loan 2 tracker without fees, so I assume it's just a minimal amount but I need to make sure it doesn't pay off in full before the 3 years is up.

If you get them to reduce your monthly repayments to keep the same mortgage term (generally MFWs wouldn't do this) then it almost doesn't matter how little you leave in there. As long as it's more than £1 per month that you want to keep the loan for.
I guess it's a question for them when you make the overpayment.

All this borrow back is subject to passing checks and applications etc at the time, but I can't see those being a problem

Ooh, stop. Stop, stop, stop.
Yes, this is a problem.
If you borrow to your max on the new loan 2 they won't let you have any more back from loan 1?

SOMEONE_3

I'm thinking since I've already overpaid £63,000 on loan 1 + another £48,500ish to pay off soon, leaving just me with less than £50K owed at 5.34%, then all I need to over-borrow on loan 2 is about £50K. I assume I have enough room left considering 12 month months ago I owed around £250,000 and earned £10K less salary.

Plus when I actually want to borrow back on loan 1, they'll be virtually nothing left to owe on it. Unless i'm mistaken, the only time i'm going to owe more than I do today is the day I over borrow on loan 2 and pay it into loan 1. After that I wait 3 years until I borrow back on loan 1 to pay off loan 2, but again the total owed will be nothing like today.

I just need to make sure I don't lose my job

On the reduce monthly payment v reduce term. Is there anything I need to make sure of here, or should I just allow them to reduce the payments since a). I can overpay what I want and b) the term will come down anyway?

JimmyTheWig

SOMEONE wrote: »

Unless i'm mistaken, the only time i'm going to owe more than I do today is the day I over borrow on loan 2 and pay it into loan 1.

Yes, you're right. I was forgetting for a minute that the extra money you would be borrowing on loan 2 would be reducing loan 1 for a while. When you get the overpayment back it will only bring you back to that level.
Even if they won't let you have it all at the time (e.g. if theyr criteria has got stricter) then you can do it with some of the overpayment, pay that off the new loan 2 then get some more of the original overpayment on loan 1 back again.

On the reduce monthly payment v reduce term. Is there anything I need to make sure of here, or should I just allow them to reduce the payments since a). I can overpay what I want and b) the term will come down anyway?

We're talking about when loan 1 gets down very low, so you won't really be missing out by reducing the monthly repayments at that point.

SOMEONE_3

Thanks

Step 1 this morning - I've overpaid £41,700 into Loan 1 (£500 free overpayment, £40,000 overpayment, £1,200 ERC).

Only £40K today as I have a few outgoings and incomings until I can overpay the next chunk.

I've also writing to Nationwide asking them to confirm in writing that I may (subject to affordability) borrow back every penny of overpayment on loan 1 both within the final 3 years of the current product, and afterwards when the remaining 15 year term reverts to Base Rate +2%.

SOMEONE_3

So I've this morning converted Loan 2 to the new 3 yr tracker at 2.29%. Very happy with that.

At the same time I've asked to borrow a further £45,000 at the same rate (this will open up a 4th loan). I intend to pay off the majority of loan 1 with this money, and then revaluate the situation in 3 years time when the fixed term expires on loan 1.

Whilst applying for this further advance we've hit a snag. It's coming back with a failed affordability :eek: So despite overpaying over £100K on loan 1 in the last 5 months, it won't let me borrow a further £45K now.

The guy is a little perplexed by this so he's going to speak to their underwriters and get back to me.

Do you think this is just a restriction in the Nationwide system that won't allow me to borrow new money (loan 4) at a lower rate than the borrow back facility rate of loan 1?