Here we go - overpayment to the max :D

lipidicman

xlt_hunter wrote:

.....If I made 120 payments into savings accounts with £250 per month into a ISA at 5.2% and £130 into savings at 4.79% after tax I will make 59k in total savings + interest and have only 56.9k Mortgage left to pay , not only the house be paid off but I would have £2k left over in the savings accounts to treat myself with a well earned holiday . Please someone tell me this is right and not flawed? :think:.

I may have missed something here, but after TAX the 4.79% savings will underperform the Mortgage. Also, whilst the ISA savings will outperform the mortgage things may change and you must resist the temptation to spend any

xlt_hunter

lipidicman wrote:

I may have missed something here, but after TAX the 4.79% savings will underperform the Mortgage. Also, whilst the ISA savings will outperform the mortgage things may change and you must resist the temptation to spend any

True, I was a little jumping the gun on this., figures redone Based on first direct esaver account at 5% Gross or 3.91% Net. Figures of the my excel sheet say that when payments for £250 in a 5.2% Net ISA and £130 in a 3.91% Net esaver I will clear my £78k mortage in 9 years and 10 months, (15 years and 2 months early and saving on £21773.19 of interest :drool:

I am a fairly easy going person when needed I will get my head down and sort it out to the bitter end temptation will be no issues as I don't need anything other than to clear this debt (mortgage)

M

lipidicman

I am still a little confused. Does the 3.91% NET beat the GROSS interest on your mortgage? Because if not (and I think you said it was 4.7% ish but you may have a better deal lined up), you will be better off using that £130 to make overpayments.

xlt_hunter

Hi Lipodcman

Yes, the rate is at Net of 3.91 - I did the changes in the excel file to have the Gross vaule in and the forumlar to work out the net at 20% of the gross.

If I over pay in the mortgage at 4.67% with £250/month in a isa and £130 towards the mortgage I will be Mortgage Free in 9 years and 9 months. If I paid the £130 into a savings account at 4.7% Gross and the £250 into an ISA still I will be mortgage free in 9 Years and 10 months. A 1 month difference.

TBH 1 month is not too much of a worry at this point in time, but - when the cash is sitting in the savings accounts I have the option to move it about to a better rate when they go up in the future, with the mortgage I say bye-bye to the extra payments so no back-up for the future.

Now I have to be clear at the game, if the Net % is higher than 4.67% then I pays to save, and then I will. If interest rate set to drop (don't think it will) then it pays to send it to the mortgage.

M

SAP_Saver

Is there a simple spreadsheet out there where you enter amount owed in total on Mortgage, Interest Percent, monthly payment and monthly overpayment to represent savings....?

lipidicman

Have a look at my post here SAP_Saver:
http://forums.moneysavingexpert.com/showthread.html?t=155630

exil

xlt_hunter wrote:

Exil - you lost me on the inflation - how would it effect the overpayment in laymens terms? If I get this right, Year 2 I make 3p profit of every £1 I put in and 6p in year 3 - this is something I am not sure of?

The effect of inflation is that £1 spent today has the same value of £1.03 spent in a year's time, £1.06 (or a bit more) in 2 year's time and so on. That is what inflation actually means.

The effect of this is to make loan interest cheaper in real terms as time goes on. It's the same principle that reduces the value of a fixed pension or annuity over time.

In time of very high inflation - where the inflation rate is HIGHER than the
interest rate - you actually SAVE money by borrowing, and the last
thing you would do is repay a loan if you don't have to.

When inflation is low, it still has the effect of reducing the benefit of overpaying.

lipidicman

An interesting point exil. I would like to investigate this mathematically, perhaps enhancing the loan amortization spreadsheet.

With inflation below interest rates the benefits of overpayment are still there, they are just reduced. I am not sure (without doing some maths) what the effect is on keeping the overpayments and saving/investing them. I suspect the effect will then cancel out, but since I have never considered this in any detail I may be wrong here

SAP_Saver

thanks guys

xlt_hunter

xlt_hunter wrote:

• I am looking at going for a new job to bring in an extra £3,400 per year before TAX/NI so in effect could bring in a extra £190 per month after TAX/NI. But never count ones chickens before they hatch

Step one has now been done!!!! YAY!! I got the job offer yesterday and waiting on the paperwork to arrive by Post - so in 4 weeks time I will be earning more! In fact it would be £2.4k not £3.4k extra - but every little helps - all extras going to the mortgage.

I have also been accepted for training funded by the skills council for LGV Cat C Driving (approx earnings over £22k) again a massive jump when going though

But not going to miss that! I needed soo badly to leave my current role.

Based on the new job offer above, putting all of the extrra earning to the mortgage/combi of savings my MFD (Mortgage Free Date has now gone from May 2031 to July 2022 (8 years and 9 Months Early!!!!!! ) and just before my 40th birthday.... groan.... Still time to make more cash!