Nationwide overpayment of under £500?

Barry_Sanchez

Hi There,

Can anyone explain to me what this means, is it simply they'll take the money and on the next interest change adjust the monthly rate lower? Is that worth it? My mortgage is £230,000 (26 year term) and I want to start paying £200 a month extra to start with, is this even worth it as I'd prefer it to come of the term but they say they don't do that for under £500.
Any other options would be great as well, a bit dumb in all of this.
Many Thanks.

muhandis

I can understand your confusion. But effectively, overpaying does the same thing as reducing the term, you still save the same amount of interest.

See here from an explanation by Martin Lewis. https://www.moneysavingexpert.com/news/2015/03/decrease-the-term-or-overpay-my-mortgage-martin-lewis-answers/

Barry_Sanchez wrote: »

Hi There,

Can anyone explain to me what this means, is it simply they'll take the money and on the next interest change adjust the monthly rate lower? Is that worth it? My mortgage is £230,000 (26 year term) and I want to start paying £200 a month extra to start with, is this even worth it as I'd prefer it to come of the term but they say they don't do that for under £500.
Any other options would be great as well, a bit dumb in all of this.
Many Thanks.

NorthernMonkey1

It's worth it. You're paying money off the balance. They wont adjust the recurring payment amount following small paymnets, but it will affect the overall term, as the mortgage finishes when the balance is zero,.

Barry_Sanchez

But when I remortgage what happens? Will they lower the monthly payment as I don't want that, here is what they state

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.

I asked the lady concerning this and she didn't really answer and as I can stop at anytime I didn't really question it hard enough, I wish I did now.

muhandis

Yes, based on what NW says there, they will adjust the monthly payment downwards at the next natural change and keep the term unchanged.

However you can replicate the effect by simply overpaying the difference in the monthly amount (in addition to you regular over-payment of £200).

NorthernMonkey1

At the next interest rate change, the bank re-calculate your mortgage, based on the amount outstanding, and the term remaining. Because you have made overpayments, the amount outstanding will be less, so that post recalculation monthly payment will be lower than if no overpayments have occured.

Interest rate calculations, are normally carried out daily, so any overpayment will result in a lower balance, and lower interest amounts than if you do not overpay.

You might be overthinking this. A mortgage is just a really big loan. When the amount you owe is zero, the loan goes away. If you want it to go away faster, pay more in, and then amount will go to zero faster.