Overpayments didn't reduce mortgage length

MORPH3US

Jonbvn wrote: »

No you won't. If you reduce the capital amount of the mortgage, then by definition the amount of interest you pay will be less.

Even if you (the bank) subsequently reduce the monthly payments as a result (with the same term)? :think:

Would be interested to see a spreadsheet working of that.

pammyj74

we need an example of both written out with workings!

MORPH3US

Right my confusion is over following a quick spreadsheet working (hope this is right)

Mortgage 1
£125,000 over 25 years at 5.09% (have used static rate for ease of calculation)
NO OVERPAYMENTS
Total capital repaid = £125,000.00
Total interest paid = £96,192.12
MORTGAGE 1 GRAND TOTAL REPAID = £221,192.12


Mortgage 2
£125,000 over 25 years at 5.09%
LUMP SUM OVERPAYMENT of £20,000 at end of year 5 BUT KEEPING THE TERM 25 YEARS
Total capital repaid = £125,000.00
Total interest paid = £87,889.19
MORTGAGE 2 GRAND TOTAL REPAID = £212,889.15
(N.B. Monthly payment is £737.31 in years 1 - 5 but then reduces to £582.51 after lump sum for remaining years)
Saving of £8,302.97 over mortgage 1


Mortgage 3
£125,000 over 25 years at 5.09%
LUMP SUM OVERPAYMENT of 20% (£147.42) per month to reduce term
Total capital repaid = £125,000.00
Total interest paid = £66,154.48
MORTGAGE 2 GRAND TOTAL REPAID = £191,154.48
Saving of £30,037.64 over mortgage 1
Saving of £21,734.67 over mortgage 2

All figures may be a few pence out as my fingers got tired on the calculator

All figures may also be well out if I have screwed up the calculations so please feel free to correct me (be gentle)

mintedmatty

MORPH3US wrote: »

No, if you increase your payments (to reduce the term) then you will pay lots less. I think I save £40,000 ish by overpaying 20% each month.

If you overpay(for simplicity sake lets say) a lump sum but subsequently accept lower monthly payments rather than a reduced term.... THEN you will still pay the same overall.

Well thats what I thought? Surely by overpaying you would save yourself interest which is whats happening in both our cases

mintedmatty

MORPH3US wrote: »

Right my confusion is over following a quick spreadsheet working (hope this is right)

Mortgage 1
£125,000 over 25 years at 5.09% (have used static rate for ease of calculation)
NO OVERPAYMENTS
Total capital repaid = £125,000.00
Total interest paid = £96,192.12
MORTGAGE 1 GRAND TOTAL REPAID = £221,192.12


Mortgage 2
£125,000 over 25 years at 5.09%
LUMP SUM OVERPAYMENT of £20,000 at end of year 5 BUT KEEPING THE TERM 25 YEARS
Total capital repaid = £125,000.00
Total interest paid = £87,889.19
MORTGAGE 2 GRAND TOTAL REPAID = £212,889.15
(N.B. Monthly payment is £737.31 in years 1 - 5 but then reduces to £582.51 after lump sum for remaining years)
Saving of £8,302.97 over mortgage 1


Mortgage 3
£125,000 over 25 years at 5.09%
LUMP SUM OVERPAYMENT of 20% (£147.42) per month to reduce term
Total capital repaid = £125,000.00
Total interest paid = £66,154.48
MORTGAGE 2 GRAND TOTAL REPAID = £191,154.48
Saving of £30,037.64 over mortgage 1
Saving of £21,734.67 over mortgage 2

All figures may be a few pence out as my fingers got tired on the calculator

All figures may also be well out if I have screwed up the calculations so please feel free to correct me (be gentle)

Just goes to show how much difference a regular payment of £147 makes rather than a lump sum after 5 years! Im glad i have continued to stick with my payments even through the tough times a couple years back when I was busy trying to purchase furniture for my gaff!

pammyj74

MORPH3US wrote: »

Right my confusion is over following a quick spreadsheet working (hope this is right)

Mortgage 1
£125,000 over 25 years at 5.09% (have used static rate for ease of calculation)
NO OVERPAYMENTS
Total capital repaid = £125,000.00
Total interest paid = £96,192.12
MORTGAGE 1 GRAND TOTAL REPAID = £221,192.12


Mortgage 2
£125,000 over 25 years at 5.09%
LUMP SUM OVERPAYMENT of £20,000 at end of year 5 BUT KEEPING THE TERM 25 YEARS
Total capital repaid = £125,000.00
Total interest paid = £87,889.19
MORTGAGE 2 GRAND TOTAL REPAID = £212,889.15
(N.B. Monthly payment is £737.31 in years 1 - 5 but then reduces to £582.51 after lump sum for remaining years)
Saving of £8,302.97 over mortgage 1


Mortgage 3
£125,000 over 25 years at 5.09%
LUMP SUM OVERPAYMENT of 20% (£147.42) per month to reduce term
Total capital repaid = £125,000.00
Total interest paid = £66,154.48
MORTGAGE 2 GRAND TOTAL REPAID = £191,154.48
Saving of £30,037.64 over mortgage 1
Saving of £21,734.67 over mortgage 2

All figures may be a few pence out as my fingers got tired on the calculator

All figures may also be well out if I have screwed up the calculations so please feel free to correct me (be gentle)

That is brilliant, just what I needed to see, thank you very much.
Just shows you how much you save!

Alion

ahhh the joys of compound interest

Going back to the reduce term or reduce repayments, I can understand both sides. My husband and I are reducing the term currently to allow us to pay off as much as possible. However, the intention is that when we upsize, we take out a new 25 year mortgage and use our reduced mortgage balance to reduce our monthly payments across the whole term so that we are financially better off when we have a family.

I think a lot of people (obviously not the people on this board) see a mortgage as something you will always have so getting rid of it doesn't really seem realistic - but reducing the bill does.

Redbedhead

MORPH3US wrote: »

I understand that getmore4less...

But the reduction in capital can either result in 1) a shorter term with the same payments or 2) lower payments for the same term...

I and I would imagine 99% of overpayers opt for option 1, but I am hoping someone might know why anyone would consider option 2.

if you know you are coming up to a period of reduced income such as maternity leave when having lower monthly outgoings is beneficial to you.

Jonbvn

MORPH3US wrote: »

Right my confusion is over following a quick spreadsheet working (hope this is right)
Mortgage 2
£125,000 over 25 years at 5.09%
LUMP SUM OVERPAYMENT of £20,000 at end of year 5 BUT KEEPING THE TERM 25 YEARS
Total capital repaid = £125,000.00
Total interest paid = £87,889.19
MORTGAGE 2 GRAND TOTAL REPAID = £212,889.15

Why year 5?

In case 3 you overpaid by 300 x 147.42 = £44,226.00

Given that you have overpaid by more than twice as much, of course you will pay less interest.

ylesia

MORPH3US wrote: »

Right my confusion is over following a quick spreadsheet working (hope this is right)

Mortgage 1
£125,000 over 25 years at 5.09% (have used static rate for ease of calculation)
NO OVERPAYMENTS
Total capital repaid = £125,000.00
Total interest paid = £96,192.12
MORTGAGE 1 GRAND TOTAL REPAID = £221,192.12


Mortgage 2
£125,000 over 25 years at 5.09%
LUMP SUM OVERPAYMENT of £20,000 at end of year 5 BUT KEEPING THE TERM 25 YEARS
Total capital repaid = £125,000.00
Total interest paid = £87,889.19
MORTGAGE 2 GRAND TOTAL REPAID = £212,889.15
(N.B. Monthly payment is £737.31 in years 1 - 5 but then reduces to £582.51 after lump sum for remaining years)
Saving of £8,302.97 over mortgage 1


Mortgage 3
£125,000 over 25 years at 5.09%
LUMP SUM OVERPAYMENT of 20% (£147.42) per month to reduce term
Total capital repaid = £125,000.00
Total interest paid = £66,154.48
MORTGAGE 2 GRAND TOTAL REPAID = £191,154.48
Saving of £30,037.64 over mortgage 1
Saving of £21,734.67 over mortgage 2

All figures may be a few pence out as my fingers got tired on the calculator

All figures may also be well out if I have screwed up the calculations so please feel free to correct me (be gentle)

But Mortgage 2 and Mortgage 3 are not comparable as the overpayment is not the same amount. 20% of £125,000 is £25,000. So surely to be comparable you would want to recalculate Mortgage 2 example with a lump sum payment of £25,000 and more like year 12 (halfway to be the rough average of a fixed regular overpayment). As it stands you can't compare Mortgage 2 with Mortgage 3.