Calculating effect of lump sum mortgage overpayment

mjd

mjd

mjd

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Hopefully someone can make more sense of this than I have so far.
I have tried several mortgage overpayment calculators but most seem to be geared to towards monthly overpayments rather than a lump sum. Those that do mention a lump sum I am clearly not bright enough to understand (I blame the heat)

Details below :

We currently owe approx. 98k on our mortgage with 17 years outstanding.
Monthly payments are currently £585 with interest at 2.5%.
We can make unlimited overpayments as we aren't tied to a particular deal with Nationwide.
We have £15k to pay off as a lump sum.


What effect is this likely to have on both our monthly payments and mortgage term? I have been on hold to Nationwide for half an hour so far, so if anyone can enlighten me I would be very grateful :)
 
Surely these depends on the mortgage agreement, but I'd assume it's differnt whether you want the end result of having the same term remaining but lower monthly fees or whether to shorten the term left or a mix of both .
 
From what I can tell it will affect the monthly payments, and 'may' reduce the term.
I'll no doubt get some sense out of Nationwide eventually, but perhaps someone has some experience of doing something similar.
 
I think we are on same base mortgage rate - not sure if you can make big overpayments, I think we were limited to £500 or £1000 a month?

Like Kitkat says, you can either bring the term down or the monthly payment, they will let you choose.
 
Nationwide's BMR/SMR products have no limit and no penalty. Overpayments in excess of £500 are applied immediately. I wasn't aware that the effect was optional to some extent.
 
If I were you I would ask the bank specifically for the overpayment to not effect the repayments. That way it will have the maximum effect on the length of the mortgage, and save you the greatest amount of money.
 
Every mortgage agremeent will tell you how much you can overpay a mortgage (if at all) - often it is around 10% in a rolling 12 month period of the initial prinicpal you borrowed at the start of the loan.

Even small oerpayments can reduce the overall length of the loan significantly and also reduce the total amount you pay over the life of the mortgage by substantial amounts in some cases, given that overpayments will typically be credited against the princiapl amount borrowed which mena interest you pay is caclulated against a steadily decreasing principal sum and therefore you pay less interest over time as the term decreases too.

So in short, always overpay if you can, it reduces the time it takes before you discharge the mortgage and you pay less overall. Win-win.
 
bazzabear said:
If I were you I would ask the bank specifically for the overpayment to not effect the repayments. That way it will have the maximum effect on the length of the mortgage, and save you the greatest amount of money.
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Thanks for that - I hadn't really considered the long term effects, but more the effects month by month. When I eventually got through to Nationwide, I arranged for an appointment at my local branch to get some first hand calculations for consideration.
 
Have the money taken off the principle , will save you the most money. The only reason to do otherwise was if you were struggling with monthly payments and wanted that reduced.

The other thing is your interest rate is very low, have a look around at what other options there are. Santander savings accounts an give you 3% I think and some bonds are more like 3.5%. As long as you can get a rate above your mortgage you will do better investing. When rates rise the make the overpayment. Although on 15K it wont make a big difference it will give you some added security if something unexpected turns up since you still have that capital.
 
Not disputing the logic of shopping around for investment products, but I think the only Santander accounts paying 3% are gross not net so even basic rate tax payers will earn less than 2.5%.

My advice would be first of all be to work out what you WANT to happen, i.e. do you want a reduced term, same term with reduced payments, or something inbetween and then discuss with the lender in terms of what the options are. My guess (and is just a guess) is that by default making a single large overpayment would lead to a recalculation of monthly payments with no change to the mortgage term. Be careful as they may try to lure you into a remortgage (which may not necessarily be a bad thing but I'd imagine you'd be better off sticking with your current unrestricted product unless you want to consider moving onto a long-term fix perhaps).
 
HangTime said:
Not disputing the logic of shopping around for investment products, but I think the only Santander accounts paying 3% are gross not net so even basic rate tax payers will earn less than 2.5%.

My advice would be first of all be to work out what you WANT to happen, i.e. do you want a reduced term, same term with reduced payments, or something inbetween and then discuss with the lender in terms of what the options are. My guess (and is just a guess) is that by default making a single large overpayment would lead to a recalculation of monthly payments with no change to the mortgage term. Be careful as they may try to lure you into a remortgage (which may not necessarily be a bad thing but I'd imagine you'd be better off sticking with your current unrestricted product unless you want to consider moving onto a long-term fix perhaps).
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Thanks for such a detailed response. Having no experience of this, I hadn't considered 'all' of the possibilities. My initial thought was that we would pay less each month and that was the end of it, but it would seem that balancing the benefits of lessening both the term and outstanding balance are a better option.
 
The calculator on the Moneysavingexpert site allows you to enter lump sum payments.
OP, I'm on the same SVR as you with Nationwide and am currently making regulary monthly overpayments whilst keeping the initial monthly repayment the same.
Have got other monies invested elsewhere so am happy for my only debt to be reduced quicker.

One thing with most calculators is that they assume you will be on that level of interest for the term of the mortage, which is unlikely, however it gives you an idea. You'ld have to enter different interest rates to compare savings.
 
I think you probably have a similar mortgage to me with Nationwide.
I recently signed up to thier online system and it seems that you have the option to keep the total term the same with lower monthly payments or to reduce the term. This was based on overpayments on £500 or more so assume would be the same on lump sum overpayments.
 
boxman2000 said:
Reduce term and increase overpayments if you can. Rates won't be staying where they are for much longer so make the most of it.
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Unless it affects the interest rate I'd say don't reduce the term, infact you want it as long as possible. This means your minimum monthly payment is as low as possible so if you have financial problems your outgoing are less. This assumes you overpay each month as (as if the term was shorted)

Depending on the mortgage you can build up a pool of over payments which you can take back without credit checks etc.
 
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