Reduce payment or term?

chelseablue

Would like some advice for our situation please

We currently owe £203,800 and if we don't do anything still have 27 years to go when I'll be 65 (not an appealing prospect!)

To clear it in 15 years we need to overpay £500 a month which I have started from this month.

After this first overpayment Nationwide sent me a letter saying our new monthly payment from July will go from £799 to £797 

So in July I plan on overpaying £502 and keep upping the overpayment to take into account the new lower standard payment 

Would you do this or ask them to reduce the term instead and keep to £500 extra a month? 

I'm leaning towards keeping it as a new lower standard payment every month and adding extra to the overpayment as my husband is self employed and if there was ever a point where he didn't have work for a month or 2 then a lower mortgage payment would be handy 

draiggoch

If you look at the Nationwide website there is a distinct  change when the overpayment hits £500 a month. Looks like if you overpaid £499 you would not get the issue with the future payments being reduced until the next re-mortgage.
See below.

How will overpayments affect my mortgage?

We calculate the interest on your mortgage daily so all overpayments will reduce the interest you pay the following day.

For overpayments of less than £500 per month:

We'll reduce your minimum monthly payments at the next natural recalculation point, such as an interest rate change or product expiry.

For single overpayments of £500 or more per month:

We'll automatically reduce your minimum monthly payments the following month.

You can change or cancel the way your overpayments affect your mortgage. We call this changing your overpayment preference.

chelseablue

Yes thats right, I was just querying what to do in my situation   

draiggoch

It might be easier in terms of arrangements just to Pay the £499 then you can decide what you want to do when you re-mortgage. Nationwide also seem to offer the availability to borrow against the overpayments in the future if something did happen to your husbands income.
I know Natwest charges an admin fee when you want to change the term, not sure about the Nationwide though.

LadyGnome

Nationwide don't charge if the OP brings down the term. I think in your specific circumstances reducing the payment makes sense if you think you might need some breathing space.  NW allows you to OP 10% of the original balance in a year so there is no danger of you hitting the OP limit this year even if you do increase the OPs.

Mortgage_Minimiser

draiggoch said:

It might be easier in terms of arrangements just to Pay the £499 then you can decide what you want to do when you re-mortgage. Nationwide also seem to offer the availability to borrow against the overpayments in the future if something did happen to your husbands income.
I know Natwest charges an admin fee when you want to change the term, not sure about the Nationwide though.

I don't think Nationwide offer the ability to borrow back against OPs (they used to but this was pulled, although if anyone has a really long Term mortgage they may still have that facility), but do offer mortgage payment holidays against any OPs made. 
MM

Chiglepig

@Mortgage_Minimiser is right, Nationwide uses the term 'Overpayment Reserve', we treat this as part of our emergency fund, since it is effectively locked away, but in a real emergency, would cover the mortgage on a month by month mortgage holiday basis.

@chelseablue, we reduce the minimum payment rather than the term and do exactly what you've proposed - up the overpayment by the reduction, although not on a monthly basis. It's useful to know that the minimum you need is lower. You still finish the mortgage early, but will have more flexibility if things, jobs etc change.

South_coast

The thing to consider with lowering your monthly payment and using it to increase OP's is that you'll be using up your OP allowance much faster and may end up being charged ERC's

chelseablue

Thanks all, had a look at our mortgage and we can overpay 10% of the original balance each year

We started off owing £233,000 so can OP £23k a year

Still undecided, we could OP £499 a month and when our fixed rate is up in April 2023 keep the same end date as we have now and the payment will be lower

Or I may keep lowering the monthly payment each month until its down to around £400 a month, then 1 person could easily pay for everything if the other was out of work 

Chiglepig

@South_coast it's a quirk of Nationwide that the OP allowance is 10% of the original sum borrowed, rather than the amount owing at the beginning of the year, which makes it more generous, and flexible (and rather more difficult to exceed!). I get what you are saying about lowering the monthly payment and raising the OP, but for the duration of this deal, @chelseablue will always have a limit of 23K, which would take considerably more than they are currently OPing to bust. It may become an issue to consider on a new deal with a lower opening balance though.

I do like the comfort of having brought down the mandatory payment, we ONLY mortgaged on one wage, but bringing it down to a level that could be covered by one wage that had been dramatically reduced is even better.

South_coast

I did think that was the case with Nationwide, but never underestimate the amount you'll be able to OP in the future 🤣!