Overpayment kitty reduces interest rate?

sizzlephizzle

Hi all,
I've had a good search around google and MSE but cannot find anything to answer this, apologies if it's here somewhere and this is a duplicate.

Nationwide offer something I've not seen before (been with them for my mortgage for 12 years).

Website extract:
You can pay off more than your required minimum monthly payment ("overpay") and build up an overpayment reserve.
Overpaying by £500 or more:

I want to:

Pay off my mortgage earlier by reducing my mortgage term
Reduce my future monthly payments
Keep my existing payment and term as-is. (At the next natural mortgage payment change, i.e. interest rate change, my payment will be automatically recalculated).

The first two options have always been available and I'm already selected on Pay off early, but this new option (to me anyway) means I could effectively overpay into a "Reserve" that reduces my interest rate.

Does anyone have any further info, like how much 1% interest reduction will cost, whether it's proportionate to your remaining balance etc etc?

Any help appreciated as the idea of an interest free mortgage is more appealing than paying interest for a shorter term.

Goldiegirl

I think you may be misunderstanding what Nationwide are saying.

They, or any other lenders, do not reduce the interest rate that is being charged if you make overpayments.

What happens is that you pay less interest if you pay more than your monthly payment because you are reducing the debt. But the interest rate doesn't change.

And you'll never get an interest free mortgage!

sizzlephizzle

Indeed I was - I just got here to delete the post before anyone replied oops. hahaha.

Always looking for a loophole

Thrugelmir

If you wish to maintain your repayments at a given level. Make them by standing order rather than direct debit. Overpaying will naturally shorten the term in which the mortgage will be repaid. Although contractually you still have the original term in which to repay. Should unexpected financial misfortune strike. You could reduce your payments and utilise the fact that you are over schedule.

The earlier you make overpayments the more interest you'll save. Even small amounts will compound over the years.

sizzlephizzle

Agreed - it really hit home when I looked at the calculator.

I currently have two mortgages and let one out to a friend who hit on hard times and a bad previous landlord. Now that they're back on their feet, I'm going to raise their rent next year to the 2012 pcm value for the area and the additional income can start going into overpayments.

Fortyfoot

I have over payments which have reduced the term, I wanted 4K back and they told me I would have to pay nearly £100 more each month unless I made a separate application to extend the term.

A few years ago this was not the case, a simple message to them and you could get money back. Now you have to ring up and beg!

They are creating more work for themselves, jobs for the boys at the members expense. I have had a few things with them recently where they are making members jump hurdles.

I wish I had never gone with them!

Thrugelmir

Fortyfoot wrote: »

They are creating more work for themselves, jobs for the boys at the members expense.

You are creating the work at other members expense. A mortgage , unless product specific, isn't an account that's designed to be overpaid and withdrawn at will. Lenders have regulatory rules to abide by as well. Times have changed.

getmore4less

3 is just 2 with a delayed payment change.

Goldiegirl

Fortyfoot wrote: »

I have over payments which have reduced the term, I wanted 4K back and they told me I would have to pay nearly £100 more each month unless I made a separate application to extend the term.

A few years ago this was not the case, a simple message to them and you could get money back. Now you have to ring up and beg!

They are creating more work for themselves, jobs for the boys at the members expense. I have had a few things with them recently where they are making members jump hurdles.

I wish I had never gone with them!

A mortgage is a mortgage, not a savings account.

Most lenders would never have let you have the money back in the way you describe.

kingstreet

Fortyfoot wrote: »

I have over payments which have reduced the term, I wanted 4K back and they told me I would have to pay nearly £100 more each month unless I made a separate application to extend the term.

A few years ago this was not the case, a simple message to them and you could get money back. Now you have to ring up and beg!

They are creating more work for themselves, jobs for the boys at the members expense. I have had a few things with them recently where they are making members jump hurdles.

I wish I had never gone with them!

You can still re-draw overpayments on a Nationwide mortgage if the mortgage was taken out, or the terms were ported from, a mortgage prior to 4 March 2010.

http://www.nationwide-intermediary.co.uk/products/existing_nationwide_borrowers#borrow_back