a point on overpaying

snowmen

hello all,
just a quickie that may be helpful to others.
We have recently started overpaying our mortgage a couple hundred pounds a month (whatever we can afford at the end of the month).
By chance I happened to phone our lenders (Nationwide) to see what this had changed our new mortgage term to so far. They advised me that my monthly payment had been reduced with the overpayments rather than the term. I advised them that any future overpayments should reduce the term instead of reducing the monthly payments - they changed this over the phone and are sending out a confirmation letter asap. I also asked them to look at my further advance account and this had been set up the same and so I changed that one also.
Looking back on recent month payments, yes I now see that my monthly payments had been reduced but with many years left on the mortgage this decrease wasn't much and you wouldnt really notice it especially if you are looking back months where there has been an interest rate cut too.
Obviously any overpayments we have made have come off the capital so we are no worse off but the end result of the overpayments wasnt as I had wanted.
Just wanted to tell everyone my experience so that maybe if you are thinking of starting to overpay your mortgage, ring up your lender and confirm which way your mortgage account is set up to take overpayments as default.
Hope this is helpful.

G-G_4

Yes, a bit sneaky isn't it.. !

Glad you found out tho and can look forward to your mortgage free date

Kaz2904

The best bet is to pay the mortgage by SO and then it doesn't reduce until you choose to reduce it. You need to stay on top of this though in case of any interest rate changes.

20000RPM

Wouldn't it be more flexible to keep the same term and simply overpay until your monthly payments are zero whether or not that's at the end of the agreed term? That way, you give yourself more wriggle room should you need money for something else - home improvements, car, emergency expenses, who knows what.

Little_Miss_Winner

Looking back on recent month payments, yes I now see that my monthly payments had been reduced but with many years left on the mortgage this decrease wasn't much

Why havent you registered for online banking?? I'm with Nationwide too, and can see all my accounts online. Mortgage accounts too. It's far easier to keep tabs on anything when you can log in numerous times a day and view them yourself like I do !!:o

HTH

Malski

20000RPM wrote: »

Wouldn't it be more flexible to keep the same term and simply overpay until your monthly payments are zero whether or not that's at the end of the agreed term? That way, you give yourself more wriggle room should you need money for something else - home improvements, car, emergency expenses, who knows what.

Agree with 200000RPM here, as your chisseling away at the mortgage you always have that extra money if needed if the rates go higher or something happens with your jobs etc. At the end of the day your mortgage is still coming down although the term is not.

snowmen

pot 'o' gold - i have registered for online banking. The mortgage rate for the BMR has come down 2 or 3 times this year already so you could mistake a reduction in payment as being due to that rather than because of an overpayment being made.

malski and 20000RPM - i agree with what you are saying but I like to keep to the payments the same because if you can afford to pay that amount for the past x years and nothing much has changed then you should still be able to pay it going forward. Also there is the will-power thing - if the same money goes towards paying the mortgage every month then it is gone. If you have to top it up sometimes the tendency is to not bother. I'd rather be made to spend the full amount and then I dont have the choice.

Valid points all.

roaljoho

There is also the option with NW, and some other lenders, to have your direct debit payment 'fixed' each month no matter what the monthly payment due is.. ie the direct debit remains at £600 per month unless the actual payment required rises above this amount. We have ours set at around £200 per month more than the actual mortgage payment due, the overpayment then rises or falls depending on the interest rate/adjustments to the amount due. I know what's going out each month despite being on a tracker and I don't have to adjust my accounts each time the rate changes. I'm not tempted to spend the overpay because it's going out as a direct debit each month. I can always cancel the arrangement if I need to and any extra overpayment can be paid direct to the account.

Roaljoho

Rabiddog_2

don't some Lenders (poss. Halifax) only credit overpayments to your account once or twice a year?? (I could be wrong )

debjay

I am a bit confused about all this really.

We are with NW and have a 25 year mortgage with 2 interest rate cuts recently. We decided to keep our DD set at the amount before the rate cut and called NW to set this up. Online it just shows the amount we pay each month but not what is the regular payment and what is the overpayment or what it is reducing and if that actually matters.

What is the best thing to do in this situation? Should we just have the DD at the regular amount and overpay via SO so we can keep track. Is there a difference between reducing the term or the amount? Will we still be informed about any further rate cut and what our regular payment should be?

roaljoho

Hi Debjay

I haven't enough knowledge to comment on the benefits or otherwise of reducing term but I can see my actual payments on NW online banking area for the mortgage in 'statements' and if you click on the bit at the bottom that says 'monthly payments' (I think) it tells you the actual amount you should be paying before any overpayment. You are still notified of any interest rate changes but there is a bit in the letter that states 'you have chosen to pay bla bla a month so your payments will not alter'. On the annual statement you are told what your overpay or 'reserve' is.

roaljoho