Overpayment on Nationwide Interest Only Mortgage

lr1277

Hi

I have done a quick search of the threads and not found anything similar. I realise also that there is another thread with the first part of the title the same as mine. Hopefully this is sufficiently different to warrant a new thread.

I have a Nationwide interest only discount tracker mortgage and as of a few months ago, I started making a few irregular small value overpayments.

When these did not bring down my mortgage payment I queried this with Nationwide. It seems only payments of £500+ triggers a change to the monthly payment.

But overpaying more than £500 means I pay a 1.5% fee on the amount.
I will say that the overpayments are showing on my yearly statement and my mortgage value has come down by the overpayments. However my monthly amount has not and is set for the pre-overpayments value.

Does this mean when overpaying I should only overpay by £500 amounts?
As anything less doesn't change my monthly payment?
Also I know that my overpayment may only decrease my montly payment by 5p (say), but where does this 5p go? Is it going towards the capital repayment or just into Nationwide's coffers?

rbrian

The overpayments reduce the term of the loan rather than the monthly payments - you make the same monthly payments, but for less time - thanks to compound interest, a small overpayment at the start of the mortgage could reduce the term by months or even years, saving far more in interest than the overpayment itself. Nationwide also allow you to borrow back the overpayments; either increasing the mortgage term or just taking a payment holiday.

UK007BullDog

You are limited max to £500 per month to overpay without penalty.

As you are making irregular overpayments it will work by reducing the term of the mortgage, which is not a bad thing as instead of paying for the next 25 years you might pay for just 23 years or 20 years or even less.

Gorgeous_George

As it is interest only, I guess the small, irregular overpayments will reduce the term slightly - from 'forever' to 'nearly forever'.

Won't they just recalculate the interest payable on the anniversary?

GG

UK007BullDog

I am with Nationwide and overpaying every month. My statement told me of the amount overpaid and the total outstanding amount has reduced.

Dan_Collins_2

You will reduce the term rather than payments, this is better in the long run though. Some lenders allow you to chose but the default is term shortened.

lr1277

I am sorry but I am confused by some of your answers.

As it is only interest only, I expect that I will have to pay off the principal in x years time. Not x-y based on my overpayments.

Or are you saying I should make my overpayments into my repayment vehicle and that will help bring down the time before I can pay off the mortgage? Yes that is possible.

However, I was talking about making overpayments against the capital. It seems to me even if I made an overpayment of £499, the monthly repayment would not be recalculated. Or have I got this wrong?

I guess my questions is, is it worth saving up till I have £500 to overpay? Or should I continue making small overpayments even though this does not seem to be having an effect on my monthly payment?

Leighthal

We have a Fixed Rate Interest Only mortgage with the Nationwide.Every month we make the full 500 quid overpayment that we are allowed and then a few days later Nationwide send us a letter telling us what our new reduced monthly payment will be.

tinkerbell84

lr1277 wrote: »

I am sorry but I am confused by some of your answers.

As it is only interest only, I expect that I will have to pay off the principal in x years time. Not x-y based on my overpayments.

Or are you saying I should make my overpayments into my repayment vehicle and that will help bring down the time before I can pay off the mortgage? Yes that is possible.

However, I was talking about making overpayments against the capital. It seems to me even if I made an overpayment of £499, the monthly repayment would not be recalculated. Or have I got this wrong?

What others have said is right.

The money you pay to Nationwide isn't paying off any capital at all - and it never will - that's what an interest only mortgage is! So by overpaying you are only shortening the length of time that you'll be paying Nationwide. If you want to boost the capital repayments, you'll need to boost your repayment vehicle.

Not necessarily a bad thing to get the length of interest payments down if your repayment vehicle is on track.

lr1277

Thanks.

I will now have to decide if I want to boost my repayment vehicle or reduce my term.

Gorgeous_George

tinkerbell84 wrote: »

What others have said is right.

The money you pay to Nationwide isn't paying off any capital at all - and it never will - that's what an interest only mortgage is! So by overpaying you are only shortening the length of time that you'll be paying Nationwide. If you want to boost the capital repayments, you'll need to boost your repayment vehicle.

Not necessarily a bad thing to get the length of interest payments down if your repayment vehicle is on track.

How can the term be reduced if the capital isn't falling?



GG