How much does overpaying actually reduce the minimum monthly payments?

gelato_cat

Hi all

We're just about to get a new mortgage to buy a house. It is an interest-only mortgage but we are allowed to pay off the capital by paying more than the minimum monthly payment. There is no limit on how much we are allowed to overpay.

According to First Direct's mortgage calculator, if we take this mortgage for 25 years and want to repay the capital (£260k) as well as the interest as we go along, at the current APR we need to make 300 equal payments of £1288. (The interest-only minimum monthly payment is £735.)

However, we want to pay the mortgage back quicker than 25 years, not least because the interest rate may rise (and so will our minimum payments). Having said that, I have calculated that even if the rate goes up to 7% we will still be OK to make the payments.

We can currently afford to overpay/offset any overpayments (I've asked which is the best way in a separate thread). I envisage that we should be able to pay £2k towards the mortgage each month, which is obviously more than the bank's minimum requirement.

Having read the key facts document it looks to me like paying back £2k a month will reduce the capital owed, hence reducing the balance upon which we are paying interest. So as long as the interest rate stays the same, the bank should be asking us for lower and lower amounts each month.

My question is, how much lower are the requested sums likely to be? What I would like to do is get the minimum payment down to below £1k a month, then £900, £800 etc. This will make us feel a lot better about the amount we owe, plus secure in the knowledge that should one of us lose our job then we can survive for many years on the one salary. (We can at the moment, and have made sure we can if the rate goes up to 7%.) I've read about people who put their (literally) spare pennies into overpaying the mortgage and am wondering how much of an effect overpaying actually has.

Is there anyone here who habitually overpays (and/or has a super maths brain) and can give me an illustration to show me what a difference it makes please?

TIA

Suze

Joe_Bloggs

@Suzey
Have you considered Locoblade's Mortgage calculator ? It is a superb contribution by an MSE forum member.
J_B.

gelato_cat

Excellent - thanks!

Suze

Joe_Bloggs wrote: »

@Suzey
Have you considered Locoblade's Mortgage calculator ? It is a superb contribution by an MSE forum member.
J_B.