Is there a better way? 25 March 2006 at 10:09AM in Mortgage-free wannabe 4 replies 1.4K views

Mental_Mentor

Hi everyone

Thinking of remortgaging in order to repay my mortgage early and am looking for advice. I currently have an offset mortgage with First Direct at 5.7% but have no savings.

I have been looking at the figures this morning as follows:

Value of property: £155,000
Current mortgage: £134,500
Repayments Interest: between £580 - 620 per month
Overpayment: £340 per month

Have calculated that if savings remain as zero and I continue to pay at the present rate of around £950 per month it will take 32 years to repay the full mortgage amount. I thought I'd took it over a 17 year term.

Can this be right? Are my calculations wrong? Is there a better way?

Help would be much appreciated - am tying self in knots

Thanks
Mental Mentor

canny_yorkshireman_2

hum why did you take on an offset mortgage with no savings to offset it against and it looks like an intrest only plan so your figures are likely to be correct as you are assuming that the overpayment is reducing the debt you took it over a 17 year term which just means that you would have to have a vehicle to repay the ammount owed after this term. you cold do two things pay the over payments into some kind of investment plan to give a better return than your intrest rate or remortgage to a better rate and then over pay the surplus or invest the extra into stocks bonds or isa's
hth

tyllwyd

I wonder if the terms that you are using are confusing the issue for you - I guess that the £580 is repaying just the interest? So were you given a figure when you took it out of the additional amount you needed to pay in order to start bringing down the capital in order to repay the mortgage over the term? Is that the £340? Because most people wouldn't call that an 'overpayment' - an overpayment would only come in when you were paying extra on top of that again, to bring the capital down more quickly.

We've got a One account, and the monthly statement we get shows us what we need to pay to stay on plan (to repay our mortgage at the term we originally stated), and it shows us whether we are behind plan or in front. Does your First Direct mortgage have anything like that?

Joe_Bloggs

I estimate on a loan of £134500 at a rate of 5.7% it will take 236 months (Nov 2025) paying £950 a month. That is 19 years 8 months. The time taken for a rate of 4.7% is 207 months (June 2023).
J_B. (A Fairly Dismal rate of interest.)

DavidHM

You're oversimplifying in your calculations.

You're assuming that your £340 overpayment is going into a black hole, never earning any interest or reducing the balance of your mortgage. If you had an interest only mortgage and were saving the cash in £50 notes under your bed, it would take you 32 (in fact nearly 33) years to repay.

However every month you're paying interest on £340 less than you were the previous month. What you've basically got is a repayment mortgage where the amount of capital repaid is constant but the amount of interest (and therefore the total payment) falls each month unless you voluntarily increase the repayment amount.

Keep the payments constant however, compensating for the fall in the interest with an increase in the repayment element, and you'll pay the mortgage off sooner.