Overpayment on Nationwide Interest Only Mortgage

CoffeeMan_2

I found this thread whilst doing a Google search ....... So just added this to the pot !

I'm self employed and due mainly to the current global financial situation and the uncertainty of the next few months/years I've just changed my mortgage (it was due to change on 1 Nov) from a repayment (tracker) to an interest only (tracker) mortgage where I can make overpayments upto 10% of the outstanding balance without any penalties.

I have no problems making my current repayments and our business is nice and steady at the moment, however I can't predict the future and things could easily get a bit tighter in the coming months/year or two. So I'm looking for some flexibility that could help stop me running into problems.

My plan is to continue making repayments at my current rate, therefore continuing to chip away at the outstanding balance. If things get tight I can temporarily switch to interest only payments and save myself over £200 per month. There is no requirement to make overpayment of £500+ for it to start reducing the interest payments (Unlike the original poster) and overpayment can be made on a regular or irregular basis.
From the mortgage documentation:
"You can make overpayments as occasional lump sums or as regular overpayments each month. Any overpayment will reduce your mortgage balance, and therefore reduce the amount of interest charged, straight away"

There is a 3 year tie in with this mortgage, but I dont see that as a problem at the moment. Also there was no setup fee and the tracker rate is broadly in line with other highstreet lenders.
Once things settle down in a year or two (hopefully) then I can look at changing back to a repayment mortgage if required.

To me this seems like a good idea at the moment. I can keep on reducing the outstanding balance of the loan whilst having the flexibility to make a decent monthly saving should the need arise, without having to arrange anything with the bank.
There is also the option for underpayments (depending on your overpayment history) and payment holidays. It gives me some flexibility and could allow me to avoid future problems !

To be honest, with the way things are at the moment I'm suprised this option isn't offered to more people. I think the main thing though is that people MUST have enough self discipline to voluntarily make those overpayments.

Any thoughts ?

======Edit====
Just a quick edit as I should have mentioned this is not a Nationwide mortgage.
This one is with Cheltenham & Gloucester.

Yorkieand

Gorgeous_George wrote: »

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



GG

Yes, I don't understand that either. Overpayments, in this case, must surely be taken from the capital, otherwise it's "dead money".

Manny79

I have a very similar issue as the original poster and have received mixed replies from Nationwide.
The person that I just spoke to at Nationwide was adament that any overpayments will come off the capital. I.e. the term of the loan will not be reduced. Since the interest is calculated daily you should see an immediate saving (albeit a small one).

I'll probably make a couple of £500 payments and if my regular payment hasn't decreased then I'll chase up Nationwide.