Am I Really Better off with Capital Repayment

malko

i spent a little time with excel and modeled a mortgage repayment schedule over 25 year.......my figures are obviously out somewhere i as i still owe 4k at the end of 25 year lol-out of interest are there any ready made excel sheets or websites that will do this?
I think im better off with capital.

thanks guys

mrtg0525

The other potential problem to keep in mind is that if you go interest only and you want to move in three years' time, there might be a chance that you owe more than you can sell your place for. Now this might as well be the case with a capital repayment mortgage, but at least the gap will be a little smaller...

Rikki

dimbo61 wrote: »

offset mortgage and full repayment
check the balance almost every day ( sad I know )
No stocks and shares or S & S ISA,s just a very big mortgage
Does it matter if the overpayments come off the IO part or repayment part ( if on the same rate )
As soon as you have repaid the repayment part you can then use all the payments to clear the IO part.

I'm hoping to keep my savings at the end of term so want to reduce the interest only capital side. The repayment part is taking care of itself..

Locoblade

malko wrote: »

i spent a little time with excel and modeled a mortgage repayment schedule over 25 year.......my figures are obviously out somewhere i as i still owe 4k at the end of 25 year lol-out of interest are there any ready made excel sheets or websites that will do this?

See my sig

Niemand

I took out a £30,000 endowment mortgage in April 1997. Its term is 25 years, so it expires in 2022.

According to the FAQ produced by the lender, I can overpay or I can make capital repayments.

My questions is: which should I do?

It seems that if I overpay, it will have no effect until 31 December of this year, whereas a capital repayment will immediately reduce my monthly repayment, so why even have an overpayment facility?

Also, am I correct in thinking that I cannot make monthly capital repayments?

Naturally, I can ask the lender these questions, but I wanted to get some feedback from those on here first.

I am not in the early repayment charging period mentioned in the FAQ answer.

Here is the Question and Answer as specifed in the FAQ.

9 What's the difference between an overpayment and a capital repayment — which is best for me?'

An overpayment is an amount you choose to pay which is higher than your normal mortgage payment. This overpayment will not change the amount of interest we charge until your account goes through annual review on 31st December. You can make this overpayment any time during the year, either monthly or as a lump sum specifying that you wish to overpay. If you are currently in an early repayment charging period, you can overpay during the year by up to a total of 20% of your 1st January balance, without incurring any early repayment charges. If your account is not in an early repayment charging period then you can overpay as much as you like. We do not acknowledge receipt of an overpayment.

A capital repayment is a lump sum payment. The smallest additional amount you can pay is £50 at any one time. This payment will reduce the balance that we charge interest on from the 1st of the following month in which you make the payment. We will send you a letter acknowledging receipt of this payment. Early in the following month we will inform you of your new payment (this only applies if your capital repayment is £500 or over). If you're in an early repayment charging period and make a capital repayment, the relevant charge will be added to your mortgage account. When you make this lump sum payment please specify that it's a capital repayment.

getmore4less

minibudgetgal wrote: »

Anyway, I did some research today. Our mortgage payments will go up by around £700 per month when we go back to cap repayment. This will mean that in 25 years time we will have paid off 280k mortgage. However if I save 700 per month in a savings plan, and raise my investment by 5% per year (roughly what we are getting through bonus and pay rises) I will have over 700k saved, according to the calculator on whatsthecost.com.

If you increase you mortgage payments you pay the mortgage off in less than 25 years.

Compare like with like.

Niemand

I wondered if anyone had any comments on my earlier post.

dunstonh

i think they would look for some endowment policy but i have a work pension which i assume should be okay.

They would look for a repayment vehicle. It wouldnt be endowment nowadays.

Pension mortgages were a good idea in theory when tax relief was much higher but the problem with pensions is that they are there to provide an income. Not capital growth. Whilst 25% (or an amount comparable to that) is available, will it be enough to meet the mortgage? do you want to put your last big payment before you die into the mortgage potentially leaving you with low capital and no way to replace it in retirement?

Many occ schemes it is not a good idea to take the cash lump sum (contrary to popular myth).

So, going interest only would be an action that really would basically reduce your living standards later in life to benefit you now.

cash-magnet

I have an interest only mortgage with Nationwide, with an endowment policy that both expire in May 2011. This SVR mortgage was paid by direct debit like almost all mortgages are on what you owed and the current rate of interest they were charging.

You are allowed to make over-payments in two ways:

1) Anything up to £499.99 would just come off the amount of capital you owed them, reducing your balance. Your direct debit payment would stay the same, but as the capital amount outstanding has been reduced, this payment effectively pays off some of the capital as well. The trick with this one is to make a number of payments of £499.99 rather than a lump sum payment if you wish to have maximum impact on reducing your capital amount faster.

2) Make a lump sum payment of any amount of £500.00 or greater. This knocks the amount you over-pay off the capital outstanding and triggers a recalculation of your interest payable each month on the new lower balance, which means your next months payment will be lower.

Personally I chose option one and once I had the capital down to £570 I made a strategic £500.00 over-payment to trigger the interest payments to be recalculated on the now much reduced outstanding balance of £72 left dropping my monthly payments down from £150.00 to just £0.37p. The endowment is now just a savings account for me and I shall just do a BACS transfer at the end to pay off the final £72 I owe.

Just a shame so many of these new mortgage packages charge you an admin fee at the start (and there was me thinking their profit came from the interest they charged) and effectively lock you into longer debt with caps on over-payments and then insulting exit fees if they are uncompetetive and you find a better deal. So glad my mortgage has almost gone.

jamesd

Niemand, the overpayment loses you savings account interest from the time you make the overpayment until 31 December so the best time to do that is a few weeks before then. It avoids having to pay the early repayment penalty on the amount.

The capital payment option has you pay the early repayment penalty and starts saving you money at the mortgage interest rate from the start of the next month, so it's best to do it as soon as possible. but you must subtract the capital payment penalty and savings account interest from the mortgage interest gain. If that's a negative number then overpayment is better. If the mortgage interest rate minus the savings rate is lower than the penalty percentage then overpayment is always better. You can make monthly capital payments if you want, just not as part of your normal monthly payment.

Usually, at the start of the year capital payments are likely to be better, near the end, overpayments. The time to switch between them depends on how much the penalty and mortgage interest rates are and how much interest you can get from savings.

Example, variable rate mortgage at 2%, savings at 1%, penalty 3%.

On Jan 1: mortgage 2% - savings 1% = 1%. This is lower than penalty 3%, use savings account until December then overpay. All other months are a worse deal than Jan so it'll never be a good idea to use a capital repayment this year.

Example, fixed rate mortgage at 5%, savings at 1%, penalty 2%.

On Jan 1: mortgage 5% - savings 1% = 4%. This is greater than the penalty of 2% so on Jan 1 it's better to make a capital repayment instead of overpaying.

On July 1: mortgage 5% - savings 1% = 4%. Must adjust for time left in the year, 6/12 months so 4 * 6 / 12 = 2%. This is the same as the 2% penalty charge so there's no difference between the two, pick either. Months before this favoured capital payment (5/12 or 4/12 etc. times 4% will be below 2% penalty). Months after this favour overpayment (7/12 times 4% etc. will be above 2%).