I’ve 12 years left but want to make a 10% overpayment before I fix for a new term of 10 years.

Now, I can switch to a new product – the 10 year fixed now. Tick.  <span style=”font-size: 0.8rem;”>But to reduce the term, Nationwide are basically making me go through a new mortgage application which is a pain in the arse.

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Am I right that if I accept the default 12 year term and take the initial 10 year fixed, make my 10% overpayment AND keep my money payments the same I’m basically reducing the term through overpayment anyway?

I’d say so, yes.

I’d look at other lenders. A new application isn’t that onerous if your credit history, equity and savings are ok.

If you do.want the easy option then I don’t think what you describe will quite work. You can over pay but it’ll reduce the future payments, not the term. Does your mortgage then allow regular over payment?

We were in a similar position a couplle of years ago.

Worth double checking you can actually keep your current payment because our provider wouldn’t let us and we ended up ‘having’ to pay less a month. But not the end of the world as the agreement also allowed 10% overpayment a year so we just did that instead with the spare left over.

I suspect you won’t be able to keep your monthly payment but worth checking.

If you can, then your logic seems okayu, though most agreements these days seem to have an overpayment allowed (or at least a lump sum overpament) so even if you can’t then you could still reduce that way.

Does your mortgage then allow regular over payment?

In all circumstances up to 10% of the initial borrowed amount, yes.

You can over pay but it’ll reduce the future payments, not the term.

No, I can choose for the payments to be maintained and the term reduced instead.  I do this now by basically paying bits & pieces through direct payment via a mobile banking app on top of the monthly payment.   Hence I’ve 12 years left on a 25 year mortgage I took out in 2012.

Leaving the term as 12yrs and overpaying is more flexible…as it allows you choice should your circumstance change.

https://www.moneysavingexpert.com/news/2015/03/decrease-the-term-or-overpay-my-mortgage-martin-lewis-answers/

Dooosuk thats very useful, thanks.

If your bank is allowing you to overpay on the 12 year term, then that should be simplest, but you do need to be careful when you get towards paying off before the end of the term to read the small print of what the exit fees are. I certainly wouldn’t be buying a 10 year fixed term because there will almost certainly be early repayment fees if you pay off before the end of those 10 years. Staying with what you have and overpaying shouldn’t be much different financially but gives you far greater flexibility when you get near to paying off the loan. You need to do a spreadsheet with all of the fees (buying the fixed rate, early repayment and exit fees, and interest rate).

Just stay with Nationwide and over pay the difference between a 12 year and ten year overall term. Do not fully repay until the 10 year fixed rate deal has ended. Job jobbed.

Yes that sound sensible.  I just went through the Nationwide web process with all but the accept button and there is an option to change the term at the end which basically works out a a £2500 p.a. saving for each year reduce.

But, as Martin Lewis says in his article, having the lower monthly payment to fall back on in times of difficult is a good idea.

Yet, there’s still a catch?  On the grand assumption my overpayments mean the mortgage ends early – because I’m specifically aiming to get this done in 10 years, I’d face a 3 year early repayment charge of £4k.  So basically as genesis says, I need to have something outstanding until after the 10 years, even if its only £1.   Essentially then my overpayments should not exceed the balance of years 11 & 12 – which then means I cannot end my mortgage early than 10 years.

The only way to deal with that is to get a 5year fixed to leave more outstanding capital subject to overpayment, but with me in a risk / reward scenario (sales, commissions) the gamble is that I can’t overpay and in 5 years the interest rate has moved significantly north.

Jeez, I thought this was supposed to be easy!

Holy crap.

I just did the 5 year illustration, and the overall repayment value over the same term – based on the current standard variable of 4.24% in years 6-12 is £1400 actually cheaper than the 10 year due to the 5yr being at 1.64%.  This also means I have much more margin to overpay in years 1-5.

So, its gambling on mortgage rates being 4.24 or less in 2024 to make this better value & more flexible….

Take the five year fix.

The ERC is too much of a potential problem. The lower rate on five years makes it for me.

Have I got this right – the ERC applies only if I pay all that I owe before the end of the fixed period?   Therefore it doesn’t matter how much or little I have remaining reverting to the variable thereafter, as long as there’s something?

Edit – sorry, found the answer – from Nationwide’s website:
You will not be charged an ERC if:

• you’re on our Base Mortgage Rate (BMR), Standard Mortgage Rate (SMR) or certain Tracker products (please check your original mortgage offer)

So for example:

a) I owe £100,000

b) 5 years fixed covers £50,000

c) I overpay by £39,999 so at the end of the 5 year, I have £1 moving onto the standard variable.

d) I pay the £1 with no ERC and walk away.

Pretty sure the bank will want the extra £10k you’ve tried to fiddle them out of ☺️

Lol. Oops

We are with Nationwide and overpaid till we had 1k left to go then went back to just paying what was due. The bonus of this was we could get the overpayment back if shit hit the fan and needed money fast and it would be back within a couple of days and it would go back onto more favourable mortage rate.

Your mortgage docs are the only way to be sure what the terms of your ERC are for your mortgage

If it’s the same as my nationwide deal you’ll be charged the ERC at a reducing percentage each year, if you overpay more than 10% of the original loan amount in any rolling 12 month period.

On a 5 year fix, it’s 5% in the first year, then 4, 3, 2, and 1% in the fifth year.

You can make a 9.9% overpayment on day 1, keep making your normal monthly payments, and overpay again after 12 months etc. This will rapidly bring the balance down and avoid charges. You can call to check how near your overpayment limits you are to make sure you don’t go over.

Once your deal is over (at the end of five years) you can repay the rest of the remaining balance with fees, other than a £125 admin fee IIRC.

One thing to check if you stay with nationwide but change product, the 10% overpayment allowance should be based on your initial borrowing, thereby allowing larger overpayments.

So if you took out a £200k mortgage 10 yrs ago and now owe £100k, staying with the lender and going for a 5 year fix will allow you to overpay £20k, rather than £10k if you go elsewhere.

Above is wrong. 10% of your annual balance – usually taken on the 1st of Jan each year.

Wasn’t for us, we made overpayments based on initial loan when we previously transferred to Nationwide, which were over 10% of the final mortgage product with them.

It is 10% for me now on the illustration offers I downloaded after going through the process without pressing submit.

with more number crunching the decision is now based on the fact that taking the 5 year now means the total 13yrs is £1400 cheaper based on the remaining 8 years being at the SVR which is currently 4.25.  This means that I’m gambling on obtaining the next 5 year fix in 2025 at 4.25% or less.  It allows me to make more overpayments but that assumes I will be able to earn them at work – and we are going through a lot of changes via acquisition now, with new company & branding starting Jan 1.  And of course my sales targets are ever increasing.

it occurred to me that going for the 10years will cost me £1400 more and limit my overpayments, but it’s safer.  If I do earn more overpayment money than I can pay, I can avoid the risk of accidentally ending the mortgage early by sticking the money in savings and aiming to get to a point where I can simply pay off all/ some of the last 3 years at 10 years and one day as it defaults to the SVR and I have no ERC to pay.

For your understanding the last three years is valued at £26000 assuming compound interest savings also, so on the 10 year that’s my overpayment limit / savings goal

edit. They main gamble being interest rates do not go up more that 2.5% in 5 years.  I reckon it’ll be close.

Thats for the various pointers in here.   After what seemed like endless amounts of maths and scenario modelling in my head most of which was probably unnecessary, we’ve managed to fix at 1.54%* for 5 years.   So far we 7 years onto a 25yr mortgage and have 11 years to go assuming no overpayments.

Nationwide just dropped their five year fixed from 1.64 to 1.54 but not the 10 year fixed rate.   For my circumstances that makes it marginally 3rd 5yr fixed on the current moneysupermarket list but as an incumbent borrower very easy to switch. 10% overpayments and porting available too.

A word from the WISE THOU NATIONWIDE are notoriously difficult to get a final settlement figure out of was the last thing my solicitor told me when i was selling up n clearing mortgages few years back .
They held up whole process by 4 weeks although i had money sat there waiting after sale had gone through.

Forget a 10 year fix, madness. I wouldn’t go over 5.

Care to explain? A little detail makes a much more convincing argument.