Every £1 overpaid saves you £5

HappyMJ

If I overpay £1 now I'd save 3.75 pence per year in interest. With compounding of interest it would take 30 years to save £2.

If interest rates were 7.5% then it would take 25 years to save £5.

Thrugelmir

HappyMJ wrote: »

If I overpay £1 now I'd save 3.75 pence per year in interest. With compounding of interest it would take 30 years to save £2.

What you do is to maintain your payments at the same level. As the 3.75 pence you would have paid in interest is instead paid off the capital in the following year. Over the years the effect compounds.

SAMMYE_2

lincoln-potter wrote: »

Its impossible to tell. You can get an approximate idea but without knowing how much the interest rate is going to increase and when its just impossible to tell.

Both past, present and future OP's will change each time the interest rate changes AND it will also depend on when you make the OP and how your interest is calculated (daily etc).

Ok well at the moment I think mine is for every £1 overpaid it saves me around £2.30. I calculate that this way:

£1 (amount overpaid) x mortgage term / 100% x Mortgage rate = interest saved.

Is that right?

Engeroosi

it should state on your mortgage paperwork, for every 1 pound borrowed you pay back x pound. your figure quoted seems about right, im on 6.29% 25 year and its just over 2 pound for every 1 pound borrowed.

adwat

I agree with Engeroosi, @6% interest every pound borrowed costs about two pounds in repayments. It just depends on the interest rate and the mortgage term. For example, £100k borrowed at 6% over 25 years equates to £192k in repayments meaning each pound borrowed costs the borrower £1.92.
£100k at 7% over 35 years costs £266k so each pound costs £2.66. So the term and interest rate determines the cost - the smaller each is the better.