Nationwide mortgage overpayments

MiniMum

Hi

I've had a look at the other threads on this topic but have questions and want to make sure I have understood things correctly before proceeding. To be clear, our goal is to reduce the amount we need to repay.

We have a Nationwide mortgage that we can overpay by 10%.

We now have £300 pcm that we can overpay by.

Nationwide say that if you are overpaying by less than £500pcm then "We’ll reduce your minimum monthly payment at the next natural recalculation point, i.e. an interest rate change or annual recalculation." It says nothing about the term.

If you repay £500 or more then it says you have the option of:
- reducing the term
- reducing the monthly repayment
- keeping the repayment and term the same.

It also says that the monthly repayment will be recalculated in the month following the overpayment.

I've spoke to Nationwide and they have confirmed that you can select to pay a monthly amount over and above your minimum pyt OR a fixed amount so that your monthly repayment doesn't reduce when the repayment is calculated,

I am confused about a few things:
1. What is option 2 for? Is this for people who want to pay a lump sum perhaps and then pay less each month?
2. Going by previous threads, people have said that option 3 gives the most flexibility - why is this? I have just spoken to Nationwide and they have said that all overpayments go into an overpayment pot (whichever option you choose) and you can use these overpayments to make your minimum payments if you need to, so I don't understand what extra flexibility keeping the term the same offers?
3. What is the effect of what Nationwide do with the under £500 option? Nationwide calculate interest daily so I can't see any issue with paying less than £500pcm as your interest owed will be recalculated straight away. When the pyt is recalculated as long as you have asked for a fixed payment (not amount over) then this should have no effect. The lady from Nationwide said that I will not see that the term has reduced until after the recalculation of the payment but that this would have no effect on the financial benefit of overpaying - does this sound correct? From what she has said under £500 sounds like option 1 but term is not reduced until repayment recalculated - is that correct?
4. Is there any advantage to keeping my £300 and instead paying £600 every two months, giving me the option to select option 3?

Thanks all!

muhandis

I'm not entirely clear on what you are seeking to find but will try and answer some of the questions I can identify, based on my knowledge of having had a Nationwide mortgage and extensively used overpayments - please see inline in red

MiniMum wrote: »

Hi

I've had a look at the other threads on this topic but have questions and want to make sure I have understood things correctly before proceeding. To be clear, our goal is to reduce the amount we need to repay. Each and every over-payment will do that, no matter how small.

We have a Nationwide mortgage that we can overpay by 10%.

We now have £300 pcm that we can overpay by.

Nationwide say that if you are overpaying by less than £500pcm then "We’ll reduce your minimum monthly payment at the next natural recalculation point, i.e. an interest rate change or annual recalculation." It says nothing about the term. The term remains unchanged in this scenario.

If you repay £500 or more then it says you have the option of:
- reducing the term
- reducing the monthly repayment
- keeping the repayment and term the same.

It also says that the monthly repayment will be recalculated in the month following the overpayment.

I've spoke to Nationwide and they have confirmed that you can select to pay a monthly amount over and above your minimum pyt OR a fixed amount so that your monthly repayment doesn't reduce when the repayment is calculated,

I am confused about a few things:
1. What is option 2 for? Is this for people who want to pay a lump sum perhaps and then pay less each month? Yes, your monthly commitment goes down with no change in the term.
2. Going by previous threads, people have said that option 3 gives the most flexibility - why is this? This is the option we picked as well because we could ask for our monthly payment to be recalculated downwards at any point

I have just spoken to Nationwide and they have said that all overpayments go into an overpayment pot (whichever option you choose) and you can use these overpayments to make your minimum payments if you need to, so I don't understand what extra flexibility keeping the term the same offers? I'm not sure how the "overpayment reserve" works as from what I understand, the features available differ based on when your mortgage started

3. What is the effect of what Nationwide do with the under £500 option? Nationwide calculate interest daily so I can't see any issue with paying less than £500pcm as your interest owed will be recalculated straight away. When the pyt is recalculated as long as you have asked for a fixed payment (not amount over) then this should have no effect. The lady from Nationwide said that I will not see that the term has reduced until after the recalculation of the payment but that this would have no effect on the financial benefit of overpaying - does this sound correct? The financial benefit of overpaying is that you save on interest. Whether you reduce your term and keep monthly payments same or reduce your monthly payments while keeping term the same, there is no difference in how much you save. See here for how Martin explains it From what she has said under £500 sounds like option 1 but term is not reduced until repayment recalculated - is that correct? Payments under £500 automatically reduce the monthly payment at the next change, not the term so it's like option 2
4. Is there any advantage to keeping my £300 and instead paying £600 every two months, giving me the option to select option 3? The only advantage is if you wanted to select a preference for options 2 or 3 on your online banking. However, assuming that the funds sit idle for the extra couple of month, you would however lose a tiny amount of interest that you would have saved

Thanks all!

MiniMum

Thank you so much for your detailed reply, most of what you have said makes sense to me. Could I just clarify a couple of points:

"From what she has said under £500 sounds like option 1 but term is not reduced until repayment recalculated - is that correct? Payments under £500 automatically reduce the monthly payment at the next change, not the term so it's like option 2"

So:
1. what the lady at nationwide told me is incorrect and if you overpay by under £500 then the term is not reduced at the next recalculation point?
2. So as long as I repay a fixed amount, when the minimum payment amount is recalculated, this will have no effect? I will just have a lower minimum payment. So as an example, my mortgage is £1200pcm. I want to overpay by £300pcm, so I select to pay a fixed amount each month of £1500. When my minimum payment is recalculated the new minimum payment is £1000pcm. My monthly payment stays at £1500 as I have opted to pay a fixed amount so I am now overpaying by £500 effectively, and presumably I have then reserved the option to reduce my monthly repayments to £1000 if I wanted to due to a change in circumstances?

"2. Going by previous threads, people have said that option 3 gives the most flexibility - why is this? This is the option we picked as well because we could ask for our monthly payment to be recalculated downwards at any point"

Why would you not just opt for option 2 and select to overpay by a fixed amount each month? Doesn't that do the same thing (except you have to request a recalculation rather than it being done automatically)?

Takmon

MiniMum wrote: »

Thank you so much for your detailed reply, most of what you have said makes sense to me. Could I just clarify a couple of points:

"From what she has said under £500 sounds like option 1 but term is not reduced until repayment recalculated - is that correct? Payments under £500 automatically reduce the monthly payment at the next change, not the term so it's like option 2"

So:
1. what the lady at nationwide told me is incorrect and if you overpay by under £500 then the term is not reduced at the next recalculation point?
2. So as long as I repay a fixed amount, when the minimum payment amount is recalculated, this will have no effect? I will just have a lower minimum payment. So as an example, my mortgage is £1200pcm. I want to overpay by £300pcm, so I select to pay a fixed amount each month of £1500. When my minimum payment is recalculated the new minimum payment is £1000pcm. My monthly payment stays at £1500 as I have opted to pay a fixed amount so I am now overpaying by £500 effectively, and presumably I have then reserved the option to reduce my monthly repayments to £1000 if I wanted to due to a change in circumstances?

"2. Going by previous threads, people have said that option 3 gives the most flexibility - why is this? This is the option we picked as well because we could ask for our monthly payment to be recalculated downwards at any point"

Why would you not just opt for option 2 and select to overpay by a fixed amount each month? Doesn't that do the same thing (except you have to request a recalculation rather than it being done automatically)?

I think your overthinking this and making is seem more complicated than it is.

I took out a Nationwide Mortgage Last year and they asked if when i overpaid did i want to Reduce the Term or Reduce the Monthly Payment (One of these things has to happen when you overpay). I chose reduce the term because i didn't want an ever decreasing monthly payment.

I just send the over payment by standing order each month to the Mortgage account, if you chose a fixed over payment it does the same thing but they take the amount by direct debit and it's a bit more difficult to change.

On my account i can see the total amount i have overpaid and i can underpay by this amount at any time. So if you have overpaid by £1200 and your monthly payment is £1200 then you can miss one months payment completely.

Niv

Are you sure you cannot do option 3? I overpay nationwide by less than £500 and I have option 3. I have had the mortgage about 2.5years so maybe they have changed their terms?

muhandis

answers inline in blue.

But honestly, [STRIKE]I think you're worrying too much[/STRIKE] The choice it essentially boils down to is whether you want your overpayments to reduce your monthly mortgage commitment (while still leaving you free to overpay by topping it up) or reduce the term. Overpaying and shortening the mortgage term do exactly the same thing. Yet overpaying has the advantage that you can stop it if you want or need to or are forced to by a change in circumstances.

If you want a clear no-nonsense explanation of how that is the case, have a read of Martin explaining it here https://www.moneysavingexpert.com/news/2015/03/decrease-the-term-or-overpay-my-mortgage-martin-lewis-answers/ :money:

MiniMum wrote: »

Thank you so much for your detailed reply, most of what you have said makes sense to me. Could I just clarify a couple of points:

"From what she has said under £500 sounds like option 1 but term is not reduced until repayment recalculated - is that correct? Payments under £500 automatically reduce the monthly payment at the next change, not the term so it's like option 2"

So:

1. what the lady at nationwide told me is incorrect and if you overpay by under £500 then the term is not reduced at the next recalculation point? From my experience, overpayment less than £500 have no impact on term at the next recalc point, just the monthly repayments and that's what NW website suggests as well

---

For overpayments of less than £500 per month:

We’ll reduce your minimum monthly payment at the next natural recalculation point, i.e. an interest rate change or annual recalculation.

---

2. So as long as I repay a fixed amount, when the minimum payment amount is recalculated, this will have no effect? I will just have a lower minimum payment. So as an example, my mortgage is £1200pcm. I want to overpay by £300pcm, so I select to pay a fixed amount each month of £1500. When my minimum payment is recalculated the new minimum payment is £1000pcm. My monthly payment stays at £1500 as I have opted to pay a fixed amount so I am now overpaying by £500 effectively, and presumably I have then reserved the option to reduce my monthly repayments to £1000 if I wanted to due to a change in circumstances? I'm not sure I understand the question correctly. But for the NW mortgage that I have taken out in 2015, an overpayment of 10% over the year will only bring down the monthly payment by approx the same amount so (say) only from £1,000 to £900/month.

"2. Going by previous threads, people have said that option 3 gives the most flexibility - why is this? This is the option we picked as well because we could ask for our monthly payment to be recalculated downwards at any point"

Why would you not just opt for option 2 and select to overpay by a fixed amount each month? Doesn't that do the same thing (except you have to request a recalculation rather than it being done automatically)? Yes, you're right it does exactly the same thing but I just preferred to have it as a "committed" expenditure on the 1st of the month for as long as I could afford to, plus it also effectively of maximises my fee free 10% over-payment allowance by making an over-payment without actually counting as an overpayment, if you see what I mean. At that time, we were fortunate enough to be able to make full use of the overpayment allowance

MiniMum

" plus it also effectively of maximises my fee free 10% over-payment allowance by making an over-payment without actually counting as an overpayment,"

Ah yes, that's a good point!

MiniMum

Takmon wrote: »

I think your overthinking this and making is seem more complicated than it is.

I took out a Nationwide Mortgage Last year and they asked if when i overpaid did i want to Reduce the Term or Reduce the Monthly Payment (One of these things has to happen when you overpay). I chose reduce the term because i didn't want an ever decreasing monthly payment.

I just send the over payment by standing order each month to the Mortgage account, if you chose a fixed over payment it does the same thing but they take the amount by direct debit and it's a bit more difficult to change.

On my account i can see the total amount i have overpaid and i can underpay by this amount at any time. So if you have overpaid by £1200 and your monthly payment is £1200 then you can miss one months payment completely.

I don't think I am overthinking this at all, I like to understand what I am doing 100% when making financial decisions and I don't think that's a bad thing at all!

Thank you for the rest of your response though, that's really helpful.

MiniMum

muhandis wrote: »

answers inline in blue.
But honestly, I think you're worrying too much The choice it essentially boils down to is whether you want your overpayments to reduce your monthly mortgage commitment (while still leaving you free to overpay by topping it up) or reduce the term. Overpaying and shortening the mortgage term do exactly the same thing. Yet overpaying has the advantage that you can stop it if you want or need to or are forced to by a change in circumstances.

If you want a clear no-nonsense explanation of how that is the case, have a read of Martin explaining it here https://www.moneysavingexpert.com/news/2015/03/decrease-the-term-or-overpay-my-mortgage-martin-lewis-answers/ :money:

Thank you for the responses. As I have responded to the other poster, I don't think I am worrying too much or over-thinking at all. I just like to understand things 100% and will ask questions until I do! Used to annoy my teachers at school too! Just the way my brain works. And there is a time and a place for a half-understood decision and I don't think finances is an area where you should just go "well I sort of understood what I was doing"!!!!

Your answers are really helpful thank you.

MiniMum

Niv wrote: »

Are you sure you cannot do option 3? I overpay nationwide by less than £500 and I have option 3. I have had the mortgage about 2.5years so maybe they have changed their terms?

I don't think so according to their current info on their website. Maybe this is something specfic to your product or this option was available when you started overpaying.?

muhandis

Absolutely, to each his/her own. I withdraw my comment about you worrying too much

MiniMum wrote: »

Thank you for the responses. As I have responded to the other poster, I don't think I am worrying too much or over-thinking at all. I just like to understand things 100% and will ask questions until I do! Used to annoy my teachers at school too! Just the way my brain works. And there is a time and a place for a half-understood decision and I don't think finances is an area where you should just go "well I sort of understood what I was doing"!!!!

Your answers are really helpful thank you.