Confused by Nationwide overpayment options

wangdoodle

Hi everyone

We are at the beginning of a looong MFW journey. Been overpaying by a small amount each month for the duration of our 2 year fix, which we took out in Feb 2014.

We are trying to get into a slightly better LTV bracket for when we switch product at the end of the term so chose to make a large (to us) one-off overpayment of around £2000.

On the Nationwide website there are two options that are available when you make a larger overpayment, as detailed below:

We automatically reduce your monthly payments rather than reduce the time you have left to pay on your mortgage. You can change this at any time if you have a capital repayment mortgage online or by calling us calling us

Once you’ve built up an overpayment reserve you can choose to:
...list of options...

I called them to change the way they handle the overpayments as I thought it would be better to reduce the term as this would reduce the amount of interest paid, but now we're looking to remortgage the term has reduced (obviously) so the repayments seem a bit high. I'm worried we've done the wrong thing. Should I call them and change it back?

SillySod

Unless I have misunderstood your question, your current term and monthly rate will not affect a new mortgage. In any case, your monthly rate will the the same as previously or lower, it won't be higher (unless you reduce the term without an overpayment).

All that matters for the new mortgagor is the amount you want to borrow and whether you can afford the repayments corresponding to your chosen term.

A_Frayed_Knot

Did the £2000 o/p take you over your limit of o/p allowed? this would mean you would be charged a penalty fee. Maybe they mean a larger o/p as in when it goes over your limit of o/p.

Normally you cannot change the term of your mortgage until you are re mortgaging, then you would be asked how much you can afford to pay each month, your term would then be worked out to accommodate your monthly payments.

How many years did you take out your mortgage for ? and what did your term get changed to?

Should also mention that your interest would not be any more if you remortgage for XX or YY years if it is calculated daily, the only time it would cost more is if you take YY years to pay .

Hope I explained that correctly.

wangdoodle

Thanks so much for your replies!

The amount we have overpaid is nowhere near the 10% overpayment limit, so there should be no fees. We originally took out a 25 year term in Feb 2014. The remaining term (after being adjusted for the overpayment) now shows as 22 years 2 months.

I'm really sorry but I was unclear in my original post. We are actually unlikely to be able remortgaging with a new lender at the end of the fix but transferring to a new product with Nationwide, so it looks like we can't adjust our term back up in that case.

Will this affect our overpayment reserve and ability to underpay (if required) in the future?

A_Frayed_Knot

If they reduced your term after the large o/p instead of monthly payments then I would expect the mortgage figure you are paying to be still the same as you were already paying.

If you opted for lower payments instead of lower term time, then the mortgage monthly payments would now be less but your term would still be the same as the original less however many months you have already paid since taking out the fixed term.

Still a bit unclear to me, as you should either be paying the same as always + reducing term time with your o/p's OR paying less than normal and no change to term time left.

My o/p reserve and ability to underpay is on a yearly basis (i think) but also have a built in holiday period if I wanted it.

Why would you want to adjust your term back up? I think we still need more facts.

A_Frayed_Knot

ON reading your posts again, it looks like as you have asked them to reduce the term time, they have reduced it by 1 year (maybe that is the lower limit that they are allowed) to reduce it by, so if you've not o/p by 1 years mortgage payments, then your payments would go up. Be careful what your doing here. I think with the fact I read that you should maybe have just left it a couple more months then sorted it at your next deal/fix.

When you go for transfer/new deal in Jan/Feb you can hopefully sort this out with Mortgage advisor, tell him what you would like, see what he comes back with, and then re-juggle from there to what you want re; monthly payments and term time.

When I done it I said how much I could pay monthly (roughly) and worked out term from there, I asked what would X years be monthly, then what would Y years be monthly, and chose from there what suited me.

Playing_with_Fire_2

I had a NW mortgage although the rules may have changed. I think you are in the same situation I was in, but I may have misunderstood your question:

There is definitely an option to reduce the term of the mortgage by the amount of the overpayment. I took off about two months for every overpayment of one month's regular payment (due to compounding interest).

Either reducing the term or reducing the minimum payment will reduce the interest you pay as long as you continue to make the same payments (and this doesn't hit the maximum OP per year). By reducing the minimum payment, it makes it easier if you want/need to reduce payments in future.

I think you need to call them and explain that (in future), you want the overpayments to go to reducing the minimum monthly payment, but that you want you direct debit amount to stay the same. I had to speak to a couple of advisors before I found someone who could do this, and you will need to explain what you are trying to achieve. They needed to calculate the new monthly minimum payment manually, and then enter that as a figure in the DD box, in the same way as they would if you were setting up an overpayment on the DD ( in fact I think in the end I rounded it up). This will mean that you will pay less interest, but that if you need to reduce your payments then you can (by calling them and changing the DD).