Overpayments didn't reduce mortgage length

ylesia

pammyj74 wrote: »

Surely it doesnt matter about the actual figures just that they are comparing which one is the better way to do. If the figures arent that far off its still the same outcome isnt it?

There is no point comparing two examples if you are have more than one factor varying. Really it just comes down to when you have the money available, if you overpay in one big lump sum early in the term then obviously you are going to pay less interest, as opposed to spreading that lump sum out because the capital is getting repaid sooner.

If after you make a lump sum payment you do not pay more than the recalculated premiums on the existing term then you will pay less interest that someone who has spread the same lump sum payment over the entire term. But you can't compare an example when the total capital overpayment is different, unless you start taking into account what interest your money is earning elsewhere while you feed your mortgage, then the overpayment would be higher in the second example.

In both cases the principal is identical, repay capital and pay less interest. The earlier in the term you repay the capital the less interest you pay.

MORPH3US

pammyj74 wrote: »

So reducing the term here, paying the exact same MP + OP, how many months does that reduce it by?

I think it reduced the term by 7 years IIRC.

Kaz2904

I also make overpayments by online banking but my point was that instead of having a direct debit (which the mortgage company controls) I have a standing order (which I control). They then have no say about how much is paid into their account each month and as long is it is above the minimum and below the maximum monthly payment, it's all fine!

MORPH3US

ylesia wrote: »

There is no point comparing two examples if you are have more than one factor varying.

Of course there is a point to comparing....

Someone can look at the examples and say IF I just pay the normal mortgage payment then it will cost me X, IF I overpay a lump sum (for example) in year 5 then it might cost me X overall and could save me X and IF I overpay regularly then it might cost me X and I could save X.

Its like someone buying 6 eggs in Tesco and then buying 6 eggs in Lidl. They might not be the exact same eggs but you can still say buying eggs at Tesco will cost me X per year and buying eggs at Lidl will cost me X per year.

ylesia

MORPH3US wrote: »

Of course there is a point to comparing....

Someone can look at the examples and say IF I just pay the normal mortgage payment then it will cost me X, IF I overpay a lump sum (for example) in year 5 then it might cost me X overall and could save me X and IF I overpay regularly then it might cost me X and I could save X.

Its like someone buying 6 eggs in Tesco and then buying 6 eggs in Lidl. They might not be the exact same eggs but you can still say buying eggs at Tesco will cost me X per year and buying eggs at Lidl will cost me X per year.

LOL - you can compare Example 1 with Example 2 and Example 1 with Example 3 but you can't meaningfully compare Example 2 with Example 3 as the capital overpayments are hugely different. Of course Example 3 will cost you less as you are overpaying more - hardly takes an example for someone to realise that (well I hope not anyway!)

If someone wants to compare what difference timing makes to overpayments then the overpayments themselves need to be equivalent, otherwise you have more than one variable affecting the answer.

Your eggs example actually proves my point, the only thing you are varying is where you buy the eggs. You are still buying 6 eggs, hence the difference in price is purely down to the price difference per egg, which of course you can compare.

Comparing Example 2 with Example 3 is like comparing buying 12 eggs in Tesco with buying 6 eggs in Lidl, the total price difference is now due to two factors - how many eggs you have point (ie. total overpayment) and where you bought them (ie. when you made the overpayments). Of course with the eggs it would be easy to work out what the price per egg was and get your real difference as you would simply half the total cost from Tesco. Hence with the mortgage examples, you need to make the overpayments comparable to get a meaningful comparison on the effect of timing.

MORPH3US

ylesia wrote: »

If someone wants to compare what difference timing makes to overpayments then the overpayments themselves need to be equivalent, otherwise you have more than one variable affecting the answer.

This is where you misunderstood then... I never suggested (or if I did then I didn't mean to) that I was comparing the differences timings made to overpayments. It was to show the difference overpayments made to interest paid. I and I am sure everyone else understands that overpaying a lump sum in year 1 will have a much different effect to overpaying a lump sum in year 24 but to be honest I couldn't be bothered to do the workings to show the effect of overpaying a lump sum every minute of every day for 25 years.

As I said, it was merely an "if you do this then it costs you £X, compared to if you do this it costs you £Y, compared to if you do this it costs you £z comparison.

:wall:

ylesia

MORPH3US wrote: »

This is where you misunderstood then... I never suggested (or if I did then I didn't mean to) that I was comparing the differences timings made to overpayments. [\QUOTE]

well that is were I have misunderstood then, I thought this is what the whole thread was about! I am not disputing that it is nice to see examples of what overpaying can do. it's quite relevant for me at the moment as I am currently not overpaying as I can earn higher interest elsewhere but I am
also working out my notional overpaymnts at the same time to see my term coming down. Some might say it's too much hassle but I don't want to pay a penny more in interest than I have to!

Mac_99

Hi can anyone offer advice on this one please.

Have 2.34% 17 year £14647 mortgage tied in till july 2012. (£500 max overpayment allowed)

Have £100 per month spare.

Is it worth overpaying straight into mortgage per month or save in a cash isa and in july 2010 pay of a lump sum before remortgaging to a shorter term?

Your thoughts please.

Many thanks.

MORPH3US

@ Mac_99...

IMO (which could be wrong) you would be better sticking it in an ISA at 3.2% and then as you say in July 2012, pay a lump sum off.

Or (if I have worked it out correctly) stick £100 a month into the Stroud & Swindon BS 4.5% AER regular saver which will give 3.6% after tax (lower rate) so even better.

Mac_99

Ok thanks thats what i was thinking, any one else with any advice?
cheers