Nationwide overpayments

jaytee17

Hi everyone,

I'm hoping that someone can help me to get my head around overpayments. I've recently taken out my first mortgage and I'm feeling a bit clueless!

I've taken a 25 year mortgage on a fixed 5 year deal. My aim is to try and pay this off as quick as I can through overpayments.

I have a nationwide mortgage which offers me the flexibility to overpay by 10% of the original loan amount per year and potentially make underpayments in the future.

After hitting the overtime I'm fortunate to be able to overpay by an extra £500 a month (I've left myself with a savings buffer and have no other debts). Nationwide offer me the following 3 options when overpaying by £500 or more.

To use the overpayment to:
1/ pay off my mortgage earlier by reducing my mortgage term
2/ reduce my future monthly payments
3/ 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).

Am I right in thinking that option 3 is the one to go for? As this would chip the mortgage balance/interest down and when it comes to the end of the fixed deal should interest rates have gone up I'd still have the buffer of the remaining 20 years to pay this off - should my circumstances have changed for the worse then this would benefit me. Should I still be in a good financial position then I can continue to overpay and get it cleared under 20 years or would I be locked into that term???

If I choose option 1 then at the end of the fixed deal I'd have the remaining reduced term left and would have to pay even more if there's increased rates.

Or at the end of the deal would I then look for the best deal open to me and state what term I would like to apply for?

I've selected option 1 for two overpayments now and received a letter today with the reduced term confirmed. It's down by a few months - so not the end of the world but I'm just wary of continuing to do this as I'm now thinking I should have gone for 3 - for the just in case scenarios which I'm hoping won't happen!!!

I hope the above makes sense. Basically which is the best option to pay it off quicker without giving myself restrictions. From a quick read around I've gathered that it's best to overpay rather than reduce the term which would mean option 3?

Thanks in advance :money:

TrickyDicky101

You have correctly identified 3 as the most suitable option for your stated aims. It is equivalent to option 1 but with additional flexibility.

AnotherJoe

If you arent paying into a pension, or not enough into a pension, this is most likely a poor financial choice compared to putting some at least into a pension.

If you do decide to do it, option 3, as you say, gives the most flexibility.

fslarsson

Hi there, I am in a similar situation. I am on the same 5-year fixed rate product with Nationwide. I have decided to make an overpayment of £10k. (Am still leaving a safety buffer of £10k.)

Out of option 1 and 3 - which option means that I will be paying less interest to the lender in total?

Is there any difference with regards to the total?

With option 1 I will be paying off the mortgage earlier - does this automatically mean I will have paid less interest in total when mortgage-free?

Grateful for any help.

Many thanks,
F x

Ambiss

Initally option 1 and 3 will incur the same interest. It is only when the rate changes - end of 5 years that option 3 will reduce your payments and hence less capital will be paid off and so more capital to charge interest on going forward.

Ofcourse if you wanted to keep the payments the same but choose option 3 for the extra flexibility you could always just pay the same amount, the extra above the recalculation going towards the capital

I would say choose option 3 for the flexibility
Then as long as your annual repayments are less then 10% of the original you can continue to pay the current set monthly amount and it will be no different in terms of interest and actual finish date of the mortgage. If you have a crisis and need to pay a bit less in the future you would have that option.

In summary option 3 is better in my opinion
You then have more flexibility and can pay the same interest as option 1 if payments made from your bank are the same

fslarsson

TrickyDicky101 wrote: »

You have correctly identified 3 as the most suitable option for your stated aims. It is equivalent to option 1 but with additional flexibility.

Hi TrickyDicky - could you please explain why option 3 has more flexibility than option 1. I am choosing between the two and I think I am going to go for option 1. My 5-year-fixed term expires in July 2020 so I figured out when it comes to renegotiating the next product it's better if I have a shorter term left and less overall balance. Please help. Thanks, Frida

fslarsson

Ambiss wrote: »

Initally option 1 and 3 will incur the same interest. It is only when the rate changes - end of 5 years that option 3 will reduce your payments and hence less capital will be paid off and so more capital to charge interest on going forward.

Ofcourse if you wanted to keep the payments the same but choose option 3 for the extra flexibility you could always just pay the same amount, the extra above the recalculation going towards the capital

I would say choose option 3 for the flexibility
Then as long as your annual repayments are less then 10% of the original you can continue to pay the current set monthly amount and it will be no different in terms of interest and actual finish date of the mortgage. If you have a crisis and need to pay a bit less in the future you would have that option.

In summary option 3 is better in my opinion
You then have more flexibility and can pay the same interest as option 1 if payments made from your bank are the same

Hi Ambiss,

Let me explain exactly my situation as I am not sure I need that extra flexibility. My 5-year-fixed term mortgage expires in July 2020.

Until then I would like to keep paying £850 a month. I am just looking to make an overpayment next week of £10k. This in order to reduce the capital and the overall interest that I am paying. Having looked at Nationwide overpayment calculater online, this could mean I am saving myself £8k on interest.

Of course I understand after the current mortgage has expired I will need to renegotiate a new mortgage which will no doubt have a higher rate than the current 2.99%. Is it not better for me then to have a shorter term left of the mortgage?

I am still saving £10-15k as a safety buffer so I am not anticipating that this overpayment of £10k will need to be retracted and I am confident I will still be able to commit to the monthly payments of £850 for the remaining two years, even if I was to lose my job.

Am I right thinking then that I dont need the 'added flexibility' and I will be better off with less capital and reduced term when it comes to renegotiating the next mortgage in 2020? Are there any alarm bells ringing as to why I shouldn't go with option 1 - if so please explain.

Many thanks,
Frida

Iant

Hi

I agree with the 3rd option as this is exactly what I have done and am now glad I did as I find myself out of work right now and am 2 years into a fixed 5 year deal.

The benefit for me anyway, is that by not reducing the future payments but reducing the term means I have built up an overpayment pot. While I can't borrow it back what I can do is now use that pot to make future payments or future reduced payments which is a massive help right now.

I can see benefits in all options but the 3rd one seemed the most sensible for me as I was making as many overpayments as possible and have managed to build up a 20k pot which in reality would take care of the next 20 monthly payments if I need it to.

Regards
Ian

antonR

Hi all,

I might have a silly question but when Nationwide allows to overpay by 10% of the original loan amount per year does this include the monthly payment?

For example in mortgage of 150k, the overpay could be the monthly payments (800 x 12 months) plus 15k?

or £9600 (total monthly payments) plus £5400?

harshitguptaiitr

Am I right in thinking that option 3 is the one to go for?

Yes, you should let your mortgage deplete naturally - don't change term or monthly payment amount unless something significant changes in your personal circumstances.

Any extra money you get - put that into pension scheme or higher interest generating accounts.