How do you calculate the benefit of extra payments on an interest/repayment mortgage

DianeM

Hi,
I have been looking around the site for a few weeks now trying to find out whether it is worth making extra payments toward our mortgage.
We have a mortgage which ends in 2014, firstly it was an endowment then we changed to the following:
£23,040 on repayment
£15,000 interest only 6.290% and this will increase to variable rate in the last 2 years (paperwork says 7.85% - 22 payments of £444.41)

The endowment policy will definitely pay out £15,000 so I am wondering if it is worth paying extra off the interest part even if we can knock a year off the term or at least reduce the payments to a lower amount in the latter stages.
We currently pay £417.31 a month.

How do I calculate this???? Looking at trying to pay £100 per month.
There is an early repayment penalty if paid before 2012 but that's not likely to be achieved.

Can anybody offer guidance on how to calculate this?
THANKS

getmore4less

to do any calculation use one of the mortgage calculators

I use this one.

http://www.whatsthecost.com/mortgage.aspx

check your lenders current SVR, the one in the T&C that was the rate at the time you took out the loan

DianeM

Thanks, but the bit I don't understand is I pay £417 a month for both loans. When you go onto the calculator it's either / or (int or rep) if I do them seperately then how do I split the monthly payment?

HappyMJ

DianeM wrote: »

Hi,
I have been looking around the site for a few weeks now trying to find out whether it is worth making extra payments toward our mortgage.
We have a mortgage which ends in 2014, firstly it was an endowment then we changed to the following:
£23,040 on repayment
£15,000 interest only 6.290% and this will increase to variable rate in the last 2 years (paperwork says 7.85% - 22 payments of £444.41)

The endowment policy will definitely pay out £15,000 so I am wondering if it is worth paying extra off the interest part even if we can knock a year off the term or at least reduce the payments to a lower amount in the latter stages.
We currently pay £417.31 a month.

How do I calculate this???? Looking at trying to pay £100 per month.
There is an early repayment penalty if paid before 2012 but that's not likely to be achieved.

Can anybody offer guidance on how to calculate this?
THANKS

That's an awful interest rate. Get as much as possible paid off as early as you can. Even if it means being a little skint for the next 2-3 years. Every extra £100 you pay will save you £7.85 per year in interest cutting about week from your mortgage term for each additional £100 of overpayment. You should pay your mortgage off in less than 4 years if you do that every month.

You have too many variables for a web calculator. You'd need to make a spreadsheet to be really accurate.

DianeM

HappyMJ wrote: »

That's an awful interest rate. Get as much as possible paid off as early as you can. Even if it means being a little skint for the next 2-3 years. Every extra £100 you pay will save you £7.85 per year in interest cutting about week from your mortgage term for each additional £100 of overpayment. You should pay your mortgage off in less than 4 years if you do that every month.

You have too many variables for a web calculator. You'd need to make a spreadsheet to be really accurate.

Thankyou - variable - that's the word I was looking for! How do I get the information for a calculator?
x

DianeM

DianeM wrote: »

Thankyou - variable - that's the word I was looking for! How do I get the information for a calculator?
x

think i have found one.

getmore4less

It is realy quite simple no need for a spreadsheet.

There are only three variables to a mortgage

Size of mortgage
interest rate
term

You can split the loan into two and do it a seperate calculations
You stick those 3 variable in and see what numbers come up for the payments
they should add up to(close) the payment you are making, if not then something is wrong.

the other way which is what you want is to treat the complete loan as interest only and stick in the payment

It will then show you the result for the combined mortgage(look at the details to see the amount owed over time)
Should have around £15k left at end of term

Stick in your overpayment and look at the results again.

DianeM

thanks getmore4less.

We are officially making £100 overpayment as from March and I have asked for it to be taken off the payment term, however if this is not the better option and anyone thinks it should be taken off the interest please let me know as I really don't know and am just wanting to pay off as quickly as we can.
Thanks