Mortgage (Nationwide) Overpaying

haddock_n_chips

Hi All,

I've had a quick search on here but couldn't find an answer to exactly (and simply!) what i was looking for!

We are in the fortunate position of being able to overpay our mortgage.

One of our ISA's has just finished it's fixed term and we have £15k currently sat earning peanuts in a current account

So we were thinking of overpaying the mortgage.

Nationwide will allow us to over pay by 10% of the ORIGINAL mortgage value, which equates to £11,750 per year

The mortgage is a fixed term 5yr deal with 3 years remaining at 3.05%

So a couple of questions:

Is it best to just pay a lump sum of £11,750 or £979.16 extra per month? (i'd set up a standing order)

And also Nationwide have 2 options when over paying;
1 - the monthly payment will be reduced accordingly
2 - the term of the mortgage will be reduced

Which option is better?!

Sorry if this is all really obvious! But i'm a little unsure which is the better option.

We have no other debt, so no need to ensure we are paying of credit cards etc...

Cheers in advance for any replies!

Will.

kingstreet

The lump sum and option 2.

haddock_n_chips

Nice and simple!

Thank you for the reply :money:

trailingspouse

Not necessarily!!

Regards reducing the payments or reducing the term, I think it depends on your life stage.

For example, if you are a family with kids, life can be expensive - so reducing the monthly outgoings would be the way to go.

But if you are an older couple, then reducing the term so that it's paid off before you reach retirement (or even earlier so that you might be able to retire sooner) might be the better option.

Beano123

One thing to think about is when the interest is calculated. Its can vary massively between mortgages. Generally speaking its either Daily, Monthly or Yearly.

If the interest is calculated on a Daily or Monthly basis then its worth doing the lump sum option.

If the interest is calculated Yearly then you need to time the payment right. Get it right and all's good - get it wrong and the money doesn't reduce your interest payments for a year!

You need to read your mortgage T&C or ring Nationwide to find out.

kingstreet

Daily interest

Daily interest is calculated as standard on all our mortgages.

So, each time your client pays off part of their mortgage, whether it's a regular payment or an overpayment, the interest is recalculated the next working day.

This means your client only pays interest on what they owe. It's the fairest way of charging interest and this reduces your client's mortgage balance without the need to wait for the end of the month or even year.

Terms & conditions apply.

http://www.nationwide-intermediary.co.uk/products/mortgage_features/daily_interest

Wookey

The remainder of your unused ISA i would be looking to stick into the 5% nationwide regular saver in two separate accounts under each of your names. This is capped at £500pm per account so nothing to stop you's putting 1k per month away and if opened and added towards the end of the month you can intially put 2k away within a few days of each other.

When it comes to renewing your mortgage agreement/terms and if you think you will be in this position again then maybe look at deals that allow you to fully overpay as much as and when you want. Interest rates can only go one way in the medium to long term and having extra flexibility is never a bad thing.

haddock_n_chips

Thanks for all the replies!

I have paid off a lump sum (£10k) as we want to keep some back to re-do the kitchen later in the year.

At this stage we have no kids and a bizarre as this is to me and probably you guys too, we had no other use for the money. Both on decent salaries and no other debts etc.

So i chose to reduce the mortgage term rather than monthly cost as we can afford the regular payments. We'll be upping our usual payment too after we get back from honeymoon (being careful not to overpay too much this year!) as we can afford another £150-200 per month on the mortgage payments.

As pointed out things may change if and when we have kids, but we can afford the current mortgage on my salary so it should hopefully all be fine. And we'll be looking at re-mortgaging in just under 3 years when the current fix ends.

As for the remaining amount from the ISA, i'll take a look at some higher interest accounts (I can also open up the First Direct regular saver at 5% as we bank with them)

Will be looking at all this again when the second ISA finishes in June and we need to figure out where to put that one....

getmore4less

You could consider keeping your ISA and recycling into new products or investing.

long term they can complement pensions and debt reduction as part of retirement planning.