04 April 2016

See if overpaying for your mortgage is the right decision for you

Overpaying your mortgage – whether it’s with a lump sum or by paying a little extra each month – could mean that you own your home outright sooner, and reduce the amount of interest you pay over the term of your mortgage.

However, it’s not a straightforward decision and it’s important to weigh up all the pros and cons before making any overpayments.

We take a closer look at some of the questions you should be asking if you're thinking about overpaying your mortgage in the near future.

Is it the most sensible use of your money?

The first thing to do is consider whether making mortgage overpayments is the most sensible use of any spare cash you have. Do you have a nest egg set aside? Do you have other debts such as credit cards or loans which you should consider paying off?

It’s also worth looking at what interest rate you could get if you put the cash into savings each month.

Will you have to pay any penalties?

You may face an Early Repayment Charge (ERC) for overpaying your mortgage, which could outweigh any gains from overpaying, so it’s important to check back over your original mortgage offer.

If you have a fixed or tracker mortgage deal with Nationwide you’ll have an overpayment allowance, dependent on the date you reserved your mortgage. You won’t be charged for any overpayments made within your allowance.

If you’re currently on our Base Mortgage Rate (BMR) or Standard Mortgage Rate (SMR) you don’t have an overpayment allowance and can make unlimited overpayments without being charged.

Full details of your ERC allowance will be in your original mortgage offer. If you can't find your original mortgage offer, your annual mortgage statement will show any applicable ERC at the date of the statement.

Find out more about Nationwide’s ERCs

Time your payments correctly

If you are planning to make an overpayment, it’s important to do it at the right time, so that the extra cash is included when your interest is calculated. Check your mortgage paperwork to see when your mortgage interest is calculated – annually, quarterly, monthly or daily. Making any overpayments just before the calculation date will ensure that your interest is reduced correctly.

At Nationwide we calculate your interest on a daily basis, so if you choose to make an overpayment your interest will be recalculated immediately.

Reducing mortgage payments vs reducing term

Overpayments can affect your mortgage in two ways – they can reduce your monthly payments or reduce the term of your mortgage. At Nationwide, if you make an overpayment of under £500, we won't automatically reduce your monthly payment amount, however, your overall mortgage balance will be reduced immediately. If you'd like your monthly payment to be recalculated, please call us on 0800 30 20 11 or visit your local branch.

If you have a capital repayment mortgage and make an overpayment of £500 or more, we'll automatically re-calculate your monthly payment. However, if you'd like to keep your payment the same and reduce your mortgage term, you'll need to let us know. You can arrange this at any time via the Internet Bank or by giving us a call.

Does overpaying mean you can underpay in the future?

If you make overpayments, you may have the opportunity to use it and underpay if you ever need to in the future.

At Nationwide, any overpayments you make will go into an overpayment reserve. As your overpayment reserve builds up over time, you'll have the opportunity to use it and underpay if you ever need to. Any underpayments that you make will reduce your overpayment reserve and result in your monthly payments increasing.

To arrange an underpayment period at Nationwide call us on 0800 30 20 11 or visit us in branch.

You may have the option to borrow back all or part of the overpayment reserve. Any overpayments will have already reduced the balance outstanding, so when it is borrowed back the balance will increase. The borrow back feature is only available if you've reserved your Nationwide mortgage before 4 March 2010.

If you would like to borrow back some of your previous overpayments on your Nationwide mortgage call us on 0800 643 044.

Find out more about overpaying on your Nationwide mortgage

YOUR MORTGAGE IS SECURED ON YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DON’T KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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