Nationwide overpayment and reduce term loophole

stphnstevey

uzubairu wrote: »

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.

You mention that you have reduced your term - that would increase your normal monthly payments - are you sure your not confusing the increase in monthly payments with the overpayments?

Are you on a fixed rate? - you could reduce your term to the minimum time left of your fixed rate, your normal monthly payments would increase and effectively allow you to overpay almost as much as you like.

uzubairu

stphnstevey wrote: »

You mention that you have reduced your term - that would increase your normal monthly payments - are you sure your not confusing the increase in monthly payments with the overpayments?

Are you on a fixed rate? - you could reduce your term to the minimum time left of your fixed rate, your normal monthly payments would increase and effectively allow you to overpay almost as much as you like.

I am on a 10 year fixed rate of 4.79% taken out in July 2006.

July 2006 - 25 year term with monthly payment fixed for 10 years at £646.
February 2010 - 8 years and 6 months remaining with monthly payment of £937.

I phoned Nationwide last year and told them that we would like the standard payment to be approx £930 per month.
They worked out what the end date of the mortgage would need to be to facilitate this. I completed the form they sent us and the payments increased. We've been paying £937 since last July.

If you overpay by £500+ (in one payment) you can request an automatic reduction in monthly payment or reduction in the term. Ours is set to the latter.

We get a letter from Nationwide each month (just after the £500 standing order overpayment goes to the mortgage account) telling us that they have reduced the term because of it. We then overpay a bit more if we can.

Term reduction payments cannot be claimed back whereas overpayments can.
You never know what's around the corner, so we like the fact we can get the overpayment money back at short notice, but whilst we don't the mortgage is reducing and we are paying less interest.

Joe_Bloggs

I got my first term reduction letter from Nationwide recently. I suspect this happened since I recently expressed preference on how I wished my overpayments were treated via the on-line mortgage page. I only ever overpay by £500.00. What is the difference if I overpay by £499.99 ? How long has the overpayment limit been allegedly set to £500 ?
J_B.

Yorkie1

I'm a little confused, despite your explanation in #13 uzubairu, sorry.

I'm about to take on a Nationwide mortgage and the ERC is 4% of the mortgage value, subject to the max £500 per month overpayment. It seemed pretty clear from the documents that if I went over that amount, the 4% would be charged.

I can understand the renegotiation to increase the regular monthly payments by reducing the term, but what if your overpayments are likely to be irregular so you can't / don't want to commit to that on a regular basis?

I'm not sure I understand how ad hoc payments of over £500 can be done without incurring the ERC.

Can anyone have another go at explaining it for me (usually fairly clued up but it's Saturday morning!)

uzubairu

I only have to commit to paying £937 each month (which is comfortably affordable).

We set up a standing order to overpay the £500 allowed (because we are on a fixed rate).
You can overpay whatever you like up to a limit of £500 if you are on a fixed rate product.

I am just stating that I have been able to overpay more than £500 each month for the last 18 months and have been subject to no charges.
I've just been to the local branch this morning and paid in another £100 (so £900 so far this month).

From what I understand (reading other posts on several threads) the ERC is charged on the value of the overpayment and not the value of the mortgage.

I found this when I was doing research (when I initially accidentally paid more than £500):-
http://forums.moneysavingexpert.com/showthread.html?p=5814043&highlight=nationwide+mortgage+overpay#post5814043
Read post #10 from MarkyMarkD

It seems like the only logical reason as to why I haven't been charged at all in the last 18 months.

Yorkie1

Many thanks for your response uzubairu.

It may be academic for a while for me if I have to replace the roof but was just interested in others' experiences with Nationwide.

Both threads duly bookmarked for future reference!

Thrugelmir

uzubairu wrote: »

It seems like the only logical reason as to why I haven't been charged at all in the last 18 months.

Or they'll charge you the ERC on the total amount overpaid at the end of the fixed term. The system most likely isn't geared to either calculate or charge for monthly amounts.

uzubairu

Thrugelmir wrote: »

Or they'll charge you the ERC on the total amount overpaid at the end of the fixed term. The system most likely isn't geared to either calculate or charge for monthly amounts.

My annual statements say different.

I've phoned them this morning to enquire about what I would have to pay to clear my mortgage in full today and the ERC does not reflect any extra charges for exceeding the overpayment limits.

I was told again that the charges are never delayed and are applied immediately, and I would be able to see them online too.

The ERC to redeem my mortgage today is actually £195 less than it was on the 31st December (when the annual statement was generated), and that's after overpaying by £1900 since January.

stphnstevey

uzubairu wrote: »

I am on a 10 year fixed rate of 4.79% taken out in July 2006.

July 2006 - 25 year term with monthly payment fixed for 10 years at £646.
February 2010 - 8 years and 6 months remaining with monthly payment of £937.

I phoned Nationwide last year and told them that we would like the standard payment to be approx £930 per month.
They worked out what the end date of the mortgage would need to be to facilitate this. I completed the form they sent us and the payments increased. We've been paying £937 since last July.

If you overpay by £500+ (in one payment) you can request an automatic reduction in monthly payment or reduction in the term. Ours is set to the latter.

We get a letter from Nationwide each month (just after the £500 standing order overpayment goes to the mortgage account) telling us that they have reduced the term because of it. We then overpay a bit more if we can.

Term reduction payments cannot be claimed back whereas overpayments can.
You never know what's around the corner, so we like the fact we can get the overpayment money back at short notice, but whilst we don't the mortgage is reducing and we are paying less interest.

It seems that you have

a) Asked Nationwide to reduce your Term so your monthly payments are £937 month from £646

b) Asked Nationwide to reduce the Term further with any adhoc overpayment you make - effectively the same as (a), but on an adhoc basis

Importantly this is a repayment mortgage - with an interest only mortgage, decreasing the term would have no effect on the normal monthly payment. So this wouldn't work.

I'm wondering if I Nationwide are flexible enough to allow you to flip between repayment and interest only?

The overpayment limit of £500 is immaterial when you can decrease your term with no penalty.

Importantly here it seems Nationwide will allow the overpayments to reduce the term on an adhoc basis.

As your fixed rate period is till 2016 and you currently have about 8yrs term remaining (2018) you could ask them to reduce the term further till 2016. However it seems better doing overpaying adhoc as you are as the normal monthly payment is not then fixed high and you can make overpayments as you like.

It would be interesting do see if you do incur an ERC once your term reaches 2016 or you make enough overpayments that bring your term to 2016 (as your not far off and would be reaching that soon with your rate of overpayment)?

My ERC on a 10yr fixed rate is a fixed amount and independent of the amount outstanding - yours seems to be a %?

uzubairu

stphnstevey wrote: »

It would be interesting do see if you do incur an ERC once your term reaches 2016 or you make enough overpayments that bring your term to 2016 (as your not far off and would be reaching that soon with your rate of overpayment)?

My ERC on a 10yr fixed rate is a fixed amount and independent of the amount outstanding - yours seems to be a %?

Dusting the cobwebs off our Mortgage Offer document.

The Early Repayment Charges on our mortgage started at 5% in year 1 and decrease by 0.5% each year ( year 2 = 4.5%, year 3 = 4.0% up to year 10 = 0.5%).

Section 11. What happens if you want to make overpayments?
"If you make an overpayment of more than £500.00 in any calendar month, including any fees added to the loan, within the Benefit Period, the early repayment charge will be calculated on the entire overpayment amount.
For example, if an overpayment of £1000 was paid in year 1, the fee would be calculated by multiplying £1000 by 5%, divided by 120, multiplied by the number of whole months of the Benefit Period remaining."

I've been advised by staff at the Nationwide to keep track of the notifications of term reduction (I get one every month), and when it gets to August 2016, formally request a term reduction to June 2016 and stop overpaying into the mortgage, and start saving elsewhere (they suggested some of their savings accounts - not that competitive just yet)..