Should I save rather than make overpayments?

jed_2

Hi all. 

I am just looking for any advice on my current thinking regarding making overpayment’s on my mortgage. 

I have approx 4 years remaining of my 5yr fix at 1.64% interest with Nationwide. 

I have a current total overpayment of £13k and also pay an extra £150 each month. 

Whilst considering savings account this morning the thought occurred to me that maybe I would be better off earning higher interest on my money rather than paying off my mortgage. I believe I may be able to even request back the overpayments I have made and start getting 4+% interest on this. 

Am I right in my thinking on this and can anybody foresee any potential problems with the above. 

I would maybe then look to pay it all off my mortgage when I re fix in 4yrs time depending on interest rates then. 

Would I be able to make an unlimited amount overpayment at the time of refixing my deal or would the 20% maximum overpayment still apply? 

K_S

@jed_2 Quick comments -

- Given that this is a new Nationwide mortgage, I don't think your overpayments can be borrowed back but they can be used to reduce the monthly payment

- from an interest saving point of view, you're absolutely right that at current savings rate, you would save/earn more interest by diverting excess cash to savings rather than overpaying your 1.6% mortgage.

- to further boost the earnings/savings, you could check with Nationwide if your term can be extended, this reducing the monthly mortgage payment and allowing you to put more money into high interest savings

- close to the end of your fix, if you're remortgaging (changing lenders) then it should be fairly straightforward to apply any built-up savings to reduce the loan size.if you'll be doing a PT (product transfer/ product switch / rate switch and staying with Nationwide) then it could get a bit more complicated depending on the LTV bands at the time, rate environment, etc.

- isn't the Nationwide annual overpayment allowance 10% of the original loan size? Is it 20% now?

jed_2 said:

Hi all. 

I am just looking for any advice on my current thinking regarding making overpayment’s on my mortgage. 

I have approx 4 years remaining of my 5yr fix at 1.64% interest with Nationwide. 

I have a current total overpayment of £13k and also pay an extra £150 each month. 

Whilst considering savings account this morning the thought occurred to me that maybe I would be better off earning higher interest on my money rather than paying off my mortgage. I believe I may be able to even request back the overpayments I have made and start getting 4+% interest on this. 

Am I right in my thinking on this and can anybody foresee any potential problems with the above. 

I would maybe then look to pay it all off my mortgage when I re fix in 4yrs time depending on interest rates then. 

Would I be able to make an unlimited amount overpayment at the time of refixing my deal or would the 20% maximum overpayment still apply? 

jed_2

Yes I think you are right about it being 10% max. I was just recalling this from memory and doubled the amount. 

Regarding recalling my overpayment I quite possibly could be wrong on this also but just remember being told that when phoning them once. Having a quick read on there site it seems I could use this pot to make my standard payment until used up. I will do some calculations and see if it is worth it and check that this wouldn’t have any adverse affects on my credit rating. 

Strummer22

If you do find yourself in a position to pay off the entire mortgage at the end of your fix in 4 years, you should just wait until you're switched automatically onto their SVR and then pay it off - there should be no ERC if you're on SVR.

mrsplinter

You don't need to go onto the SVR to make a large overpayment as Nationwide waives ERCs in the last calendar month of their deals. This means you can lock in a deal early and start the new deal as soon as your previous one ends.

https://www.nationwide-intermediary.co.uk/products/fees-and-charges

dimbo61

Don't forget you will pay TAX on Interest you earn from savings.
The allowance has been cut to £1,000/£500 depending on your Tax rate !
Save into ISA,s