Overpayment

slbs2009

Hello,

I'm just after some help, I currently hold a nationwide mortgage fixed for the next 3 and a half years at 3.69%

The balance at the moment is 106,000 with 27 years remaining.

My monthly payment is £522 and I currently over pay the max which is £500 without any penalties, I've just spoke to nationwide and they've said if I want to overpay an additional £500 the fee is £50 a month which will be added to the balance.

My question is, shall I save this in a 3% saving account or would it be worth me paying the penalty and reducing my mortgage a lot faster.

I'm a 20% tax payer.

Many thanks in advance.

Yorkie1

That's very odd - I overpay by £600 pm and don't have any additional charges. I just get a letter every month telling me what my reduced monthly payment next month will be.

What sort of mortgage do you have with them?

slbs2009

It's a 5 year fixed rate of 3.69%

They let me overpay £500 every month without penalties but if I increase it to anything over £500 it incurs charges.

To do an additional £500 it's a £50 charge, I'm really not sure if it would be beneficial to me or not?

dimbo61

Not worth paying a 10% fee to overpay.
Ring the mortgage centre at Nationwide and ask the question
" Can we reduce our mortgage term from 22/23/24/25 years down to 14/15/16/17 years "
Use " whatsthecost " to work out the figures
As an example
22 year mortgage payment £753 a month, rang up my lender and reduced the term to 10years ( cost £50 ) and mortgage payment went up by £500 a month BUT this knocked £30,000 off the mortgage cost and paid off 12 years early.
ONLY DO THIS IF YOU CAN AFFORD INCREASED MORTGAGE PAYMENT EVERY SINGLE MONTH ??????
You can ask the question for free

Yorkie1

Ah right, yes, it'll be an early repayment charge because you took your mortgage out before 29 May 2013. My mortgage is after that date and the o/p allowances are wider.

Using the o/p calculator at the top of the page, on £106K over 27 years:

At £500 p/m, you'd have about £75K left after 3.5 years and would repay the mortgage in 11 years assuming the % rate stayed at 3.69.

At £950 p/m (i.e. £1000 o/p less £50 charge) it would be about £55K left and repay in 7 years.

Assuming the extra £500 p/m goes instead into a regular saver instead at 3% (2.4% net), that would be over £15K including interest (ignoring compounding of interest, which I can't work out!) at the end of 3.5 years.

So you'd have more left to pay at the end of the fix if you stuck it in a savings account and paid a lump sum off at that point. Lots of variables though - you could get a savings account at 6% for £300 p/m, for example.

Also consider other plans such as ensuring you have a rainy day fund of up to 6 months' expenditure and pension provision. You can't rely on getting the o/p's back if you need to.

getmore4less

That's a 10% charge which is ridiculous don't know of any that have ERC that high.

You need to understand how the charge is made up admin fee, ERC etc.

If you can overpay £500 and are thinking about another £500 if this is going to be a permanent situation what about a shorter term making the regular payment higher.

probably other options like just save the money till the penalty has gone.

dimbo61

The £50 fee might be for any amount over the £500 allowed and you are already paying so it might be worth saving in a regular saver for 12 months and then paying the whole lot off in one go ( paying £50 fee )

slbs2009

Thank you for all your suggestions.

I think I'll ask to shorten the mortgage term instead of paying the £50 fee every month which i thought was very high.

Thanks again.