Mortgage Overpayments Paid To Interest

Psbcuddles

Hi

I have recently paid off my mortgage by making a number of large and small overpayments.  I asked for a breakdown of the mortgage overpayments, and noticed that a portion of every overpayment was paid to interest and not to principal.

Before making any overpayments I asked Nationwide how the overpayments would be applied to my mortgage account.  Nationwide staff told me that mortgage overpayments all go to principal.  Unfortunately, that hasn't happened, up to 80% of some mortgage payments went to interest.

I had a standard replayment mortgage and it is my understanding that the monthly mortgage payment would meet all mortgage obligations, payment to interest and payment to principal, allowing all overpayments to be paid solely off the princiapal.

Nationwide have paid £800 of my mortgage overpayments to interest over a 3 year period.

Can Nationwide take my overpayments and pay them to interest without my knowledge or consent?

El_Torro

It doesn't make sense for overpayments to go to interest. There is only so much interest to pay and since your regular payments pay off the interest in full every month the only place for an overpayment to go is the capital (the principal). 

Are Nationwide using your overpayments on interest and using your regular payments to eat into more of the capital? I'm not sure why they would calculate it that way but it's the only explanation I can think of so early in the morning. Well, there is another explanation: they are keeping the money you give them for themselves and not using it to decrease the size of your mortgage. I very much doubt that a well regulated company like Nationwide would do that though.

Psbcuddles

I can give some examples of what Nationwide have been doing:

- Overpayment £50 - £11.00 to Principal - £39.00 to Interest

- Overpayment £122 - £67.00 to Principal - £55.00 to Interest

Every single over payment a percentage of it went to pay Interest.  Interest paid from my monthly mortgage payment remains largely unchanged.

I raised a complaint and quoted from their website:

Quotes From Nationwide website:

- 24 September 2024

‘Note:
If the repayment method on your mortgage account is part interest and part repayment, any overpayment will be automatically applied to the capital repayment part of your mortgage.’

- 30 September 2024

‘If you want your overpayment to be applied to the interest only part, you will need to request this every time you make an overpayment by calling us on 0345 609 25 31 (Monday to Friday, 8am to 6pm, Saturday 9am to 2pm. Closed Sundays and bank holidays).’

- 30 September 2024

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

Nationwide insist that those quotes don't apply to me because I don't have that kind of mortgage!  I have a Capital Repayment Mortgage.

During a conversation with another senior mortgage advisor at Nationwide, I was told that the only type of mortgage that they now off is, Capital Repayment Mortgages.  So either the information on their website applies to Mortgage Products no longer offered by Nationwide, or the complainte handle is wrong!

MWT

Not sure why any of that matters.

Your mortgage balance each month is the net of previous months closing balance less payments plus interest.

If your regular monthly payment remains unchanged then the balance at the end of the month is still going to be as it should be regardless of how they allocate each overpayment.

Psbcuddles

i don't know how to reply to individuals on here, so this is for MWT

It does matter, we have been making overpayments on our mortgage since 2022.  Nationwide have been assigning part of our overpayments to interest.  Overpayments are supposed to reduce the amount of interest you pay as the principal outstanding balance is reduced, the interest payments are reduced the following day, and mortgage interest is applied daily.

If part of my overpayment goes to interest, and is not paid off the principal, the interest paid the following day will not be reduced by the total overpayment, as only part of my overpayment was paid to principal.

The interest payments should reduce following an overpaymnt, but with up to 80% of some overpayments been applied to interest, instead of to principal, my mortgage interest payments have not been reduced as much as they should have been, so I've been payming more interest than I should of since 2022!

TrickyDicky101

Do you have your mortgage statements for prior years (I'm referring to the one Nationwide send out after the calendar year end summarising start of year balance, interest charges, repaid amounts, interest rate and the outstanding capital balance at year end)?  If you have one for 2022 or 2023 you can calculate what your interest charge for the year should approximately be and compare that to what's been charged per the statement.  It won't be exact but it should provide reassurance.

Psbcuddles

Thank you TrickyDicky101

I'm not that organised with my paper work, but I'll see what I can find.

Exodi

As someone who has painstakingly worked out exactly how Nationwide calculate interest and overpayments so I can accurately forecast future balances in an (excessive) excel sheet, I'm 99.9% you've misunderstood something.

Interest is calculated daily on the balance, which overpayments reduce. I can track each overpayment I've ever made and can calculate and verify the interest charged corresponds to a direct reduction of the overpayment in the balance..

I am always suprised at the speed at which so many people on online forums seemingly jump to the conclusion that massive banks/building societies don't know how to calculate interest.

Psbcuddles said:

- Overpayment £50 - £11.00 to Principal - £39.00 to Interest

- Overpayment £122 - £67.00 to Principal - £55.00 to Interest

How did you arrive at these figures?

I really hope it's not something as crude as "I make a £50 payment on day 1 and check the balance after a day or two to check whether it has reduced by £50", because obviously later days would be including more days worth of interest on the mortgage balance.

lfc321

Is your claim that Nationwide charged you too much interest overall?

Or are you saying that you paid the right total amount of interest, but some of this was being covered by your overpayments (presumably meaning that more than normal of your regular monthly payment was going to paying off capital?). If it's this, what is the negative impact? Is it that there was a delay because the capital amount wasn't reducing until the next monthly payment?

Psbcuddles

Thank you for all your replies.

I asked Nationwide for an Overpayment Breakdown, the figures I quoted came directly from the Mortgage Breakdown that Nationwide sent me!

What I am trying to say, is that Nationwide paid part of all of my overpayments to interest, according to their own documents.  Nationwide agree that they have taken part of each overpayment and paid it to interest.

However, they told me several times that all of my overpayments will be paid to principal and not to interest, but now they have told me something completely different.  

Nationwide say they can do this. 

Each row of the overpayment documents they sent me has a date range, some have 2 days, others 20 days, they recorded the interest I needed to pay over a period of days, up to 20 days I think, and they took that interest off my mortgage overpayment.  I would have thought that my mortgage overpayment was made on 1 single day, it did not cover 2 or more days, but this is how Nationwide have allowed themselves to take a part of each overpayment to pay the mortgage interest.

It would be so much easier if I could just scan and upload the document they sent me, it is very clear what they have done, and I do not accept that they have the right to do what they did.  They have offered me £250 compensation, they put it in my bank account, and didn't give me the opportunity to reject it, and then they said that the compensation would effect how the ombusdman viewed the case.  I can't belive what they did, I have not accepted any compensation from them, they have forced it on me!

It is my understanding that the Monthly Mortgage Payment should meet all Mortgage Obligation, leaving overpayment to be paid solely to Principal.

In total Nationwide paid £800 of the £56,000 of overpayments to Interest.

Had all my mortgage over payments been put towards the principal, I would have paid less interest over the last 3 years of my mortgage.  When overpayments are paid to interest instead of to princiaple, the principal is not reduced as much as it should have been, and as a result the amount owned on principal was higher than it should have been, resulting in more interst being paid.

It is my understanding that overpayments reduce the interest on the mortgage the following day, but if not all of my overpayments were paid to princiapal, then I must have paid more interest than I should of since I first started making over payments in 2022.

I'm not saying that Nationwide did not calculate interest correctly, I'm saying that if they had paid all of my overpayments to principal then I would have paid less overall interest.

The part of my overpayments that was paid to interest did not reduce the principal and as a result I paid more interest the following day, and every other day since.

I will copy out some of the colums in the mortgage overpayment breakdown so that you can see they applied each mortgage overpayment within a date range of up to 20 days, and you will be able to clearly see expactly what I'm trying to explain here.

This is really hard for me to explain, sorry, I'm doing my best!

MWT

Psbcuddles said:

Each row of the overpayment documents they sent me has a date range, some have 2 days, others 20 days, they recorded the interest I needed to pay over a period of days, up to 20 days I think, and they took that interest off my mortgage overpayment.  I would have thought that my mortgage overpayment was made on 1 single day, it did not cover 2 or more days, but this is how Nationwide have allowed themselves to take a part of each overpayment to pay the mortgage interest.

If those varying numbers of days correspond to the time since your last regular payment or over payment it makes sense, as in order to correctly calculate both the amount outstanding and the interest moving forward they would have to calculate your remaining balance first (previous balance plus interest to date) then deduct the overpayment giving you a new remaining capital figure.

That means that some part of each overpayment will go against the interest since the previous payment and the rest against capital.

In effect, you cannot just repay the capital element without accounting for the daily interest accrued up to that point...

The result of that is that when your regular payment arrives it further reduces the capital balance as there is less interest outstanding to be paid. 

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