Could anyone help me understand overpaying (Nationwide) mortgage?

jimjames

B0bbyEwing said:

jimjames said:

B0bbyEwing said:

Hmm. I'm off work in a few weeks time. I'm thinking it's going to probably be better to have a face-to-face with someone at Nationwide and find out EXACTLY the effects of this as typically, this doesn't seem straught forward. 

Regards the earlier comment of it may be better to save than overpay.

So if mortgage is 5% and savings are 5.5% then put money in to savings? 

I think you're overthinking it. We've got a Nationwide mortgage and have made overpayments over a number of years. Good thing with them is that the 10% overpayment is based on original amount not current balance - in later years that makes quite a difference.

Shortening the term due to overpayment will not increase monthly payments. The overpayment allows the term to reduce but with the same payment each month. Keeping the term the same will reduce your monthly payments as you've reduced the balance outstanding so essentially have paid some of those future payments already.

In terms of savings vs overpaying - yes it can be better. My mortgage rate is 1.24% so can easily be beaten by savings at the moment. If it was 5% vs 5.5% then it would be more marginal if it's worth.

Or do THEY decide what your overpayment reduces it by (equivalent to the amount overpaid)? 

Yes that's exactly what happens. If you overpay by say £10k they will calculate how many months less on the mortgage that equates to if you choose the option to reduce term. As in your example above the monthly amount can't increase if the term has decreased from 21 to 19 years because the outstanding balance is lower because then you'd pay back more than you owe when you take account of your overpayment.

Our mortgage was originally due to finish in 2025 but will now be cleared in Jan 2023 as payments were kept the same when overpayments made. The balance is now under £10k which could be cleared by a single overpayment as the 10% is based on original loan but with the rate fixed at 1.24% there is no point paying it off faster now. 

BikingBud

B0bbyEwing said:

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.

How will you identify when, or even if, you are  comfortably able to afford a detached house?  Especially when in your first post you admit that you didn't know what rate you were on!

A number of people have offered advice and provided routes to enable you to better understand your current situation, including how significant interest savings can be achieved by overpaying by differing methods, yet it seems you neither want to acknowledge nor engage.  

Look at your circumstances, understand your mortgage (the debt and the T&Cs), do the calculations, understand your potential benefits (early pay off and large cash sum in your hands - £260K in the example I offered) and make the decision or

Enjoy the roller coaster!

B0bbyEwing

Not really sure where you're coming from with that. 

1) I never brought up moving. Someone else did. 
Shoot me for responding to it but I was simply making the point that we have no plans to move. If anything we don't want to move and bought our house with the intention of never moving...unless a detached house was do-able. 

2) how would I know I could afford a detached house? Well if my mother dies before me and my siblings are set up then that COULD be one way. 

I know it's also a way for members on here to say but but but, but it is ONE way. 

There's obviously other ways but since I got the strong impression your question wasn't a genuine one we'll leave it at that. 

2) I didn't know the rate because I didn't open my online portal to check because in the grand scheme of things I didn't think it that vital. Rates are going above it anyway. 

Obviously to do a proper comparison I'd have opened the online portal to check properly but to just ask a question on a forum, no. I don't think the advice would've been any different for the rate I thought it was without checking vs the rate it is after checking.