Overpayment preferences

Blade200

Hello. I'm looking at setting up my overpayment preferences with Nationwide. They have 3 options to choose from. My goal is to pay off mortgage earlier thus save on the interest. I will be looking to overpay monthly, not by a set amount but just as much as I can, It will be below £500 however. I'm a little confused on option 1 and 3 with what could be best.

With option 1 does your original monthly payment stay the same but your term reduces by whatever the overpayment equates to? Whenever I read Reduce my mortgage term it makes me think monthly payment will go up but maybe this isn't the case?

Option 3 has flexibility if, god forbid, you can't make your monthly payment you can use your overpayments towards it. But despite your term staying the same your overpayments are in-affect reducing it you just don't see it like option 1.

Sorry if being stupid   

jrawle

Your interpretation of option 3 is correct. Option 1 doesn't make your monthly payment go up. The whole point is that the overpayment reduced the monthly term, keeping the monthly payment the same.

However, I believe these preferences only come into play if you make an individual overpayment of £500 or more. If you overpay by less than £500, in works like option 3 anyway. If there is a change in interest rate, your monthly payment will be recalculated taking overpayments into account, but if you are a fixed rate, this won't happen anyway. At the end of your fixed deal, you can choose a different term at the same time you choose a new deal. So I'd say, if you are overpaying less than £500 and are on a fixed deal, these options are irrelevant anyway.

Blade200

Ah so these only come in to play if paying £500 or more per month... why does it not say that anywhere or maybe it does and my eyes are painted on! Ok I'll just send my overpayments to my mortgage account every month and not worry about these options.

jrawle

Blade200 said:

Ah so these only come in to play if paying £500 or more per month... why does it not say that anywhere or maybe it does and my eyes are painted on! Ok I'll just send my overpayments to my mortgage account every month and not worry about these options.

See half way down this page:

https://www.nationwide.co.uk/mortgages/existing-mortgage-members/overpayments/

Yorkie1

Re. option 3, I wouldn't rely on being able to underpay based on previous overpayments. It will depend on the terms of your mortgage - I've had a NWide one for 14 years now, and I don't think I've ever had the option of this (or, if so, not for the last 10 years for sure)