Overpayment allowance after Nationwide product switch

muhandis

Hi,

We took out a mortgage with Nationwide recently for £348,000 and have been overpaying the maximum amount allowed. We are getting to the end of the fixed period and plan to switch products (to a 2 or 3 year fixed rate deal) and stay with NW. The mortgage amount at the time of the switch will be around £264,000.

So, NW allows annual penalty free overpayment of 10% of the original mortgage amount ie £34,800 until now. My question is, after the product switch will that stay at £34,800 or will it drop to £26,400?

I called NW to ask, but after spending ages on the phone, 2 agents gave me 2 different answers.

I was wondering whether someone who has done a NW product switch might know the answer?

Thanks,
Kala.

MockTurtle

You have to think of the remortgage as a new mortgage as the overpayment allowance will be 10% of the value of the mortgage on the day you switch to the new product, so £26,400 allowance.

But, if you want to overpay by more, Nationwide also have mortgages that have no limit on the amount you can overpay. Have you considered those?

I have a tracker mortgage with them that has no ERC and I can overpay as much as I like. Of course, it's not fixed, so the rates could go up, but with no ERC if the rates do go up, I can switch straight to a different product with no penalty. You have to have a Flex account with them to get some of the mortgages on offer, but its not a fee account.

muhandis

Thank you very much, that's very useful. I did come across the tracker deals with very similar interest rates to the fixed ones, but didn't know that unlimited overpayments were allowed or that you could switch away any time. if interest rates stay close to where they are, that's a great option!

I do have a flexdirect account.

MockTurtle wrote: »

You have to think of the remortgage as a new mortgage as the overpayment allowance will be 10% of the value of the mortgage on the day you switch to the new product, so £26,400 allowance.

But, if you want to overpay by more, Nationwide also have mortgages that have no limit on the amount you can overpay. Have you considered those?

I have a tracker mortgage with them that has no ERC and I can overpay as much as I like. Of course, it's not fixed, so the rates could go up, but with no ERC if the rates do go up, I can switch straight to a different product with no penalty. You have to have a Flex account with them to get some of the mortgages on offer, but its not a fee account.

Glover1862

If you're keeping everything the same ie , no new lending or change in term then I would say that you are doing a product switch and not remortgage hence the £34800 amount would apply, this is assuming NW allow 10% of the original mortgage.

muhandis

It's definitely 10% of the original loan amount and not the reducing balance. Their T&Cs say that clearly and it was one of the reasons why we opted for NW.

Yes everything else remains the same, no additional borrowing or change in term.

Glover1862 wrote: »

If you're keeping everything the same ie , no new lending or change in term then I would say that you are doing a product switch and not remortgage hence the £34800 amount would apply, this is assuming NW allow 10% of the original mortgage.

kingstreet

By opting for a new product, you are altering the terms of your mortgage.

I also suspect you will be limited to overpayments of 10% of the opening balance at the time of taking the new product.

As an example, if your first product reverted to BMR, choosing a new product would now revert to SVR so you would lose BMR. So your terms change with selection of a new product.

Only Nationwide can confirm this. We're all speculating.

muhandis

Thanks, that makes sense. I guess I will have to get back on the phone to NW and try explain my question more clearly. I will post on here once I know.

kingstreet wrote: »

By opting for a new product, you
are altering the terms of your mortgage.

I also suspect you will be limited to overpayments of 10% of the opening balance at the time of taking the new product.

As an example, if your first product reverted to BMR, choosing a new product would now revert to SVR so you would lose BMR. So your terms change with selection of a new product.

Only Nationwide can confirm this. We're all speculating.

muhandis

Finally got through to a very knowledgeable agent at NW, FYI here's what she had to say-

- If the product switch is done seamlessly (i.e. without any period in between on the SVR) the 10% overpayment allowance will continue as is and will be based on the initial amount lent, so it will remain at £34,800 per year.

- If any time at all was spent on the SVR in between the two fixed term deals, the new overpayment allowance would be 10% of the balance at the start of the new fixed deal.

muhandis wrote: »

Thanks, that makes sense. I guess I will have to get back on the phone to NW and try explain my question more clearly. I will post on here once I know.

rtho782

If you are consistently overpaying by this much, just reduce the mortgage term if you want to stay on a fixed.

Right now you're overpaying £36,000 a year, so £3,000 a month, meaning you could probably just get a ~7 year mortgage.

Then you can have a fixed deal and not worry about ERCs.

lee111s

rtho782 wrote: »

If you are consistently overpaying by this much, just reduce the mortgage term if you want to stay on a fixed.

Right now you're overpaying £36,000 a year, so £3,000 a month, meaning you could probably just get a ~7 year mortgage.

Then you can have a fixed deal and not worry about ERCs.

The joy of overpaying is that if you were to fall on hard times you're not contractually bound to the higher payment amounts.

muhandis

Yeah, as Martin says, "Don't reduce your term if you can overpay." I wouldn't want to commit to higher payments but still like to have the freedom to overpay a decent amount penalty free depending on how things are going.

lee111s wrote: »

The joy of overpaying is that if you were to fall on hard times you're not contractually bound to the higher payment amounts.