Overpaying Nationwide Mortgage

Italiaboy

Hi, Hope someone can help. Been reading posts and am totally motivated to become mortgage free in 5 years (end of fixed term with deal with Nationwide)

Prob is that I have a 2 part mortgage. Both parts are due to finish at same time. One part is Interest only (approx £40k) and other is repayment (approx £32k). Both are on fixed rate deal of 5.44%.

To avoid early repayment penalties, I would like to overpay each month so that mortgage is finished when deal runs out.

I have calculated this using the excellent calculators on the site.

Trouble I have is for the interest only mortgage I have to overpay £500 exactly each month. This is causing Nationwide problems as they say you have to reduce interest due the following month thus reducing my overall monthly payment.

Is this right? Does it matter?

If so, what can I do. Should I change this to a repayment mortgage with Nationwide? Should I reduce term?

Seem to be constantly on phone to Nationwide and my motivation is decreasing fast.

Help!!!!!!!!!!

Karmacat

Hi italiaboy

I can't see why it would cause Nationwide any problems if you repay £500 each month. I've done that twice, and they just send me a letter saying my payment will be reduced by such and such an amount next month. They may not *like* the extra expense of writing that letter, but they can certainly cope with doing it. Not quite sure what the problem is, sorry.

Italiaboy

Thanks. The problem is that I don't want the monthly payment to go down. My thoughts are by reducing the monthly payment then I won't make my target of 5 years. i.e I have calculated I need to pay £687 per month. They want to reduce this to £682 and then the following month when i overpay it reduces again and so on thus the target is not met.

I hope this makes sense. My head hurts thinking about it.

SoozyJ22

I have a repayment mortgage with Nationwide. When I first made an overpayment of £500 they wrote to tell me they'd reduce my next month's payment unless I told them I wanted to reduce the term instead - which I did and now they automatically reduce the term every month and write to tell me. I'm not sure why they can't reduce the term on your interest only mortgage instead of reducing the repayments.

Italiaboy

Me neither.

I keep getting told that on an interest only mortgage the capital doesn't come down. Been on phone four or five times, each saying this.

Losing will to be mortgage free!!!

Karmacat

Aha! Its what soozyj22 said - you want to reduce the term, not the payments. I suspect you're holding this conversation with Nationwide on the phone, is that right? See one of their mortgage advisors, they're generaly sensible. Good luck.

Italiaboy

Thanks.

It is on the phone.

I've tried the advisors in the past and was told that they need to contact Head Office. Got fed up waiting.

Only because of this site have I rekindled my desire to be mortgage free in recent weeks.

If their policy is to beat me into submission - its working.

Hippychick

Do you have an additional savings plan for the interest only part of the mortgage?

You will still owe 40k at the end of the term as you are only paying interest on it and not reducing the capitol, would it not be better to pay extra into whatever plan you are using to repay the balance when your mortgage expires. Not sure if you have an endowment policy or ISA's?

Kaz2904

In order to clear your mortgage in 5 years (#40000/5/12= #666.66 per month repayment) So you need to pay this on top of what you already pay and tell them to reduce the term not the monthly payment.

Italiaboy

Thanks.

I am restricted to £500 per month overpayment by Nationwide. The additional part needed is going to an ISA so that when the deal runs out I can pay it off there and then.

Nationwide don't seem to want to reduce the term only the interest due monthly. Therin lies the problem.

I do have an endowment. I am going to keep this going but for my own benefit and not to repay the mortgage. Overpayments should cover this.

My thinking is that I should maybe make it a repayment mortgage and overpay accordingly reducing the term as I go. Overpaying on a repayment mortgage does not seem to cause problems reading the threads.

MarkyMarkD

There's a lot of duff advice on this thread.

Reducing the term on an interest only mortgage makes no difference to the payments because the payments are interest only.

If your mortgage restricts you to overpayments of £500 per month, as most Nationwide products do, you can't avoid this problem other than by changing the interest only mortgage to repayment.

I don't see why on earth you don't simply do that, as you want to repay as quickly as possible. Then the other duff advice becomes valid as you can opt that each repayment is used to reduce the term, not reduce the payments.

The other obvious benefit of becoming repayment is that you can overpay more, as the standard payments on a repayment basis will be higher than the standard payments on an interest only basis. Indeed, the shorter the term you choose, the more you can overpay without any penalty - but you lose the flexibility to NOT overpay the element which is now part of your required repayments.