Could anyone help me understand overpaying (Nationwide) mortgage?

BikingBud

B0bbyEwing said:

I don't think it's the idea that overpaying leads to paying off sooner that's the the confusing part. 

Its that in my OP, Nationwide say which of 3 ways would you like to overpay. 
My only prior experience to overpaying was with a bank loan. 

10k borrowed over say 5 years. Pay back at say 2k per year (roughly speaking - obviously payments are monthly).
One year you say I'm going to pay 6k extra. 

Just like that, your 5yr term becomes 3yrs instead automatically but your monthly payments aren't changed any.
If your monthly payments also reduced then maybe you'd be back at 5 yrs total, but they remain the same. 

And I expected the mortgage thing to be the exact same so was surprised when it wasn't. 

Also, the secure messaging service with nationwide say I can't have the face to face. Has to be over the phone. 

Which would be fine.... If they worked longer hours than me. Except they don't. I start work way before them and I get home after they finish and only get a 30min dinner which you can end up using in full just being on hold waiting to speak to your first human. 

Just flip a coin then

Beetroot_24

I'm with Nationwide, have been for 5 years and have overpaid for 4 of those. 

For the first few years we chose to keep the payment and the term the same (third option) and our agreed redemption date stayed at July 2028.

We product switched last December, (knocked 6 months off the term taking it to 6 years), and I changed to option one. Since then my agreed redemption date has changed from December 2027 to April 2027. Other than that, it has made no difference. 

(For the year that we didn't overpay, we increased the term from 9 years to 12 with no issue (we'd had an extension and used the extra money on home improvements instead), then reduced it back with no hassle. I've always found Nationwide to be really helpful and flexible)

Beetroot_24

ElwoodBlues said:

They all reduce your mortgage interest/save you money over the course of the mortgage, but the biggest savings are to be had by paying it off earlier rather than reducing your ongoing monthly payments over the existing term.

Interest is calculated daily, on whatever the current balance is. If you can get a better rate in savings than your mortgage rate (which is actually quite possible right now) then your money is better off in savings. But unless it's a big amount of money, or the interest differential is large, you're probably only looking at a few pounds a year benefit.

Also check how your overpayment allowance works. Mine (with NatWest) allows me to overpay 10% of the balance in fixed 12 month period, with the balance being taken at the start of the 12 months. So if my balance is 100k on the 1st October (or whatever date the lender specifies) then I can over pay up to 10k in the following 12 months (up to 30th September the next year, and then the new overpayment allowance for the next year is worked out). NatWest email me an overpayment statement each year showing how much I can overpay.

I rushed through my full overpayment allowance at the end of last month, so now I have the next full years overpayment allowance available to me as well (albeit slightly less due to the decreasing balance)

You would need to check exactly how your lender calculates overpayment allowances.

Nationwide allow 10% of the original balance a year, it doesn't decrease.

B0bbyEwing

Beetroot_24 said:

ElwoodBlues said:

They all reduce your mortgage interest/save you money over the course of the mortgage, but the biggest savings are to be had by paying it off earlier rather than reducing your ongoing monthly payments over the existing term.

Interest is calculated daily, on whatever the current balance is. If you can get a better rate in savings than your mortgage rate (which is actually quite possible right now) then your money is better off in savings. But unless it's a big amount of money, or the interest differential is large, you're probably only looking at a few pounds a year benefit.

Also check how your overpayment allowance works. Mine (with NatWest) allows me to overpay 10% of the balance in fixed 12 month period, with the balance being taken at the start of the 12 months. So if my balance is 100k on the 1st October (or whatever date the lender specifies) then I can over pay up to 10k in the following 12 months (up to 30th September the next year, and then the new overpayment allowance for the next year is worked out). NatWest email me an overpayment statement each year showing how much I can overpay.

I rushed through my full overpayment allowance at the end of last month, so now I have the next full years overpayment allowance available to me as well (albeit slightly less due to the decreasing balance)

You would need to check exactly how your lender calculates overpayment allowances.

Nationwide allow 10% of the original balance a year, it doesn't decrease.

Yeah, I'm going to guess if I jump ship then that'll change in line with the new providers T&Cs which will almost certainly be less than £10.2k for me. 

And then if I return to Nationwide it'll then be 10% of whatever the mortgage is THEN and not the 102k I originally took out with them. 

So if I've the chance of overpaying the full allowance again, which I might but not totally sure, jumping ship isn't so straight forward. 

fewcloudy

Yeah, I'm going to guess if I jump ship then that'll change in line with the new providers T&Cs which will almost certainly be less than £10.2k for me. 

And then if I return to Nationwide it'll then be 10% of whatever the mortgage is THEN and not the 102k I originally took out with them. 

So if I've the chance of overpaying the full allowance again, which I might but not totally sure, jumping ship isn't so straight forward. 

If if’s and ands were pots and pans…

Contrary to what you said earlier, this IS overanalysing, and you need to be careful you aren’t paralysed by it.

Yes, a new lender will have their own Ts and Cs. No guessing about it.

No, Nationwide will not take a wee note of your previous financial situation when you were a customer with them, in case you should return to them at some unknown point in the future…

At this stage I’m losing the will. But I can say with a high degree of certainty that each day of procrastination is likely costing you money.

B0bbyEwing

fewcloudy said:

Yeah, I'm going to guess if I jump ship then that'll change in line with the new providers T&Cs which will almost certainly be less than £10.2k for me. 

And then if I return to Nationwide it'll then be 10% of whatever the mortgage is THEN and not the 102k I originally took out with them. 

So if I've the chance of overpaying the full allowance again, which I might but not totally sure, jumping ship isn't so straight forward. 

If if’s and ands were pots and pans…

Contrary to what you said earlier, this IS overanalysing, and you need to be careful you aren’t paralysed by it.

Yes, a new lender will have their own Ts and Cs. No guessing about it.

No, Nationwide will not take a wee note of your previous financial situation when you were a customer with them, in case you should return to them at some unknown point in the future…

At this stage I’m losing the will. But I can say with a high degree of certainty that each day of procrastination is likely costing you money.

I do apologise for causing offence by simply responding to someone. 

SavingPennies_2

I haven't read the full thread but you can do both, but you have to be specific in your requests and it can be a bit confusing (I'm with Nationwide and did both before just fixing to a new deal)

jsm4356

On intentional mortgage over-payments you usually choose between (1) reducing monthly repayment, or (2) reducing the duration of the mortgage. Over the remaining lifetime of the mortgage, you will pay less overall interest with option 2. However, IF you think you might want to upsize home sometime before the mortgage finishes, and will need to port the mortgage to a new bigger home, reducing the term of the mortgage rather than your monthly outgoings, might REDUCE the maximum amount of new extra borrowing you can do. Hence for “might upsize” folk, reducing the monthly repayments, option 1 might be better. Worth considering. 

Sapindus

I've been overpaying on my Halifax mortgage for a few years now.  The first time I did it, I rang them to check it was OK.  The adviser asked if I would like to reduce my payments accordingly and I said no.  So my mortgage term is still the same, and the payments are still the same. I will pay my mortgage "off" earlier, the calculator just shows it rumbling on with a balance of zero for the remaining years.

B0bbyEwing

jsm4356 said:

Over the remaining lifetime of the mortgage, you will pay less overall interest with option 2. 

I'm surprised. I would've thought that would apply to option 1 - the term is less. 

I don't want to be accused of overthinking though but that's what I thought.

jsm4356 said:

However, IF you think you might want to upsize home 

Nope. The intention from day 1 was a buy once home.

Only way I see us moving is if we ever have the chance to comfortably afford a detached house. I see no point in moving from semi to semi because all the semi issues are semi issues, whether that be this house, that house or another house.