Nationwide overpayment and reduce term loophole

sanju

2004 - £105k
2004- 25 year term
2007 - £87k with overpayments (and taking £5000 back out)
2007 - cost a month before reduceing term - £560 + overpayment £500
2007 - 9 year term
2007 - cost a month after reduceing term - £1024 + overpayment £500

I have a nationwide mortgage of £87k and make over payments of £500 via direct debit and have last month reduced my term to 9years.

I also asked them if i can increase my term back up from the 9 years to say 15 years and told that was no problem and can do it as offten as i like.:beer:

I therfore wonder if this is a sort of loophole in the system. It is a work around the £500 limit on the over payment system is it not?

toonfish

it would appear to be an excellent way round it - thanks!

stphnstevey

Was this a fixed rate?

uzubairu

I regularly overpay £700+ each month, and have been doing so since last September.

I pay £500 each month by standing order and then make 1 or 2 extra payments each month of £100-£200.
It has worked for the last 11 months and I paid £888 this month and got away with £950 last month.

I have reduced the term a few times, but I know I can get back the overpayments in an emergency, so I try to overpay as much as I can get away with. So far no problems.

I haven't updated my signature with July's figures yet, but YTD the overpayments are £5300 with no fees/charges, when the official limit is £3500.

stphnstevey

They simply say that you can overpay upto £500 with no repayment charges - if you pay more than this, they are within their rights to charge you a part redemption fee at any time they like (eg when they spot it!)

The shortening of the term with no restrictions on times you alter this seems very interesting. In that way you can legitimately increase the normal monthly payments and also make the £500 overpayment

stphnstevey

Have you been able to continue to do this sanju?

uzubairu

I'm still overpaying by more than £500 per month and I'm on a fixed rate until 2016.

Added £9,000 to the Overpayment Reserve last year (as stated on my annual statement) and no fees or charges.

Already paid £1,800 so far this year.

Thrugelmir

uzubairu wrote: »

I'm still overpaying by more than £500 per month and I'm on a fixed rate until 2016.

Added £9,000 to the Overpayment Reserve last year (as stated on my annual statement) and no fees or charges.

Already paid £1,800 so far this year.

Are you ceratin that you aren't getting charged?

stphnstevey

uzubairu wrote: »

I'm still overpaying by more than £500 per month and I'm on a fixed rate until 2016.

Added £9,000 to the Overpayment Reserve last year (as stated on my annual statement) and no fees or charges.

Already paid £1,800 so far this year.

Is that repayment or interest only mortgage?

uzubairu

Thrugelmir wrote: »

Are you ceratin that you aren't getting charged?

110% sure. 18 months in a row with overpayments of £500+.
I have a Repayment mortgage.

I first accidentally exceeded the limit when I was changing bank accounts in 2008 (the standing orders came out of the old and new account - I kept the old account live during the changeover), and in a panic about paying fees, I called the Nationwide and asked them what would happen next and what charges I would be facing.

The advisor I spoke to said she couldn't see any charges on my account, because they are applied at the same time and there would be clearly visible to me if I checked my account online.

I had phoned them several days after the event and she couldn't see any charges at all, so told me not to worry.
That was in September.

I read somewhere on MSE that if you exceeded the OP limit by up to £400, nationwide don't really bother because the charge at 3% would be £12 which they don't bother chasing you for.

Next few months I continued to overpay £500+ (because I'd got away with it) and when I received my annual statement in January 2009, the OP Reserve had increased by the amounts paid and there were NO charges whatsover.

In 2009 I reduced the term twice and overpaid more than £500 every month and had no issues and my annual statement last month was exactly the same as last year with NO charges whatsover being made.
All totals matched my spreadsheet which confirmed that no charges had been applied.

Just 2 weeks ago, I called them about the fact that the term will probably reach June 2016 within the next 12-15 months (given the rate of overpayment) and what would happen then, as I didn't want an overpayment to reduce it further and then apply a hefty charge, they assured me that I could have that the overpayment returned and advised me to think of getting another savings/investment product to put that money in.

Pincher

Even if you start out on a fixed rate, it ends and you go onto a variable SVR or tracker. My understanding is that this is outside the penalty period, which is why you can switch to a different lender without penalty, because you are effectively redeeming with the first lender. During the variable rate stage, the computer has to adjust the payments depending on interest rate movements anyway, to match the remaining term.

So what's the big deal with overpayment, if you can redeem the whole mortgage without penalty? It's only a hassle if the customer pays in lots of tiny amounts. If I was the lender, I would prefer an annual lump sum overpayment, to save on admin.