Mortgage Overpayment Query

tomtt

Hi All,
I am a first time buyer and have got a fixed term mortgage with Nationwide. I have saved some money and would like to make an overpayment of £5000 to my mortgage account.
Nationwide gives me three options if I overpay-
1)Reduce Term
2) Reduce Monthly payment
3) Do neither and put the money into a pot, which would be used if I can't make payments in some months for any reason.

Could you kindly advice which of these options I should go for?
Many Thanks

Elfbert

Which one do you want to go for?? It's not really for us to tell you!

I don't believe that is actually the exact words Nationwide use for option 3 though...

(I do option 3 - change neither the monthly payment amount or the term, but pay off the mortgage faster and save masses of interest in the process. It's not used 'if you can't make payments' - but it does give you that buffer, if you speak to Nwide if that situation where ever to arise.)

Huskyrunner

The putting money into a pot? Do you mean offsetting it ie the interest off the savings offsets the mortgage interest.

What term is your mortgage currently?

Rola_cola

Our mortgage is with nationwide too. We reduce the monthly payment, but continue to pay the same - if that makes sense?

It works for us as we're effectively reducing the term but have the flexibility to reduce our monthly payment if things are tight.

Thrugelmir

Do you have emergency savings?

How secure is your employment?

The list of questions goes on. Only you know the answers.

tomtt

Hi Elfbert,
Thanks, I will find a bit more about Option 3. I didn't realize that this will reduce my overall interest.

tomtt

Hi HuskyRunner,
Thanks for you reply. Its not an offset mortgage. And I won't be getting any interest for the overpayment I make.

Its a 30 year mortgage and its only been a year so far.

tomtt

Hi Thrugelmir,
Thanks for your reply.
I do have other savings for any emergencies and my job is secure. I can comfortably make this overpayment and also continue the current amount that I am paying.
I am just trying to understand which of these options is the best value for me overall.

TheShape

Rola_cola wrote: »

Our mortgage is with nationwide too. We reduce the monthly payment, but continue to pay the same - if that makes sense?

It works for us as we're effectively reducing the term but have the flexibility to reduce our monthly payment if things are tight.

I'm a big supporter of this approach because it gives you the flexibility of overpaying when you can and reduces your required monthly payments which is useful if things get tight in the future.