Overpayments

jay-jay

Can someone please explain to me in layman terms (sorry complete novice when it comes to mortgages) how effective paying £50 a month of a £100,000 over 22 years would be.

We would love to reduce the term of the mortgage to 18 years but worry some months the repayments would be to much for us as only one of us works at the moment and my hubbys income can be anything from 2K to 4.5K per month. This way we could throw a little bit of money at it, perhaps more if the budget allows and less if it doesnt. The idea is to spend the next four years doing this, then I would return to work and we could afford the move to a four bed.

What im really asking is, is £50 per month extra enough to really make much difference to the life of the mortgage or do we really need to pull our socks up and make it more (we could do this but would have to make more cutbacks. How do people deal with their kids when doing this!!)

My interest rates are 4.24% fixed till early 2013
Thanks and sorry for waffling
Jay

TrickyDicky101

Without knowing your rate on your mortgage, I have assumed you are paying a mortgage rate of 5% (the calculation won't be wildly different for higher/lower rates but it will be different). A £100k loan at 5% over exactly 22 years (repayments in arrears basis) will cost you £625 per month. If every month you managed to overpay by £50 per month, then you would cut the term down to approximately 19 years and 3 months, a saving of 2 years and 9 months over the original term.

TrickyDicky101

Note: Your overpayments would need to be in the region of £78 per month to cut your term by 4 years to 18 years (this isn't particularly sensitive to what mortgage rate you are paying so as long as you consistently overpay by £78 you would cut the term to 18 years).

davilown

According to Martin's over payment calculator here, you would knock at leaat 3 and half years off your mortgage at 5% interest.

TrickyDicky101

davilown wrote: »

According to Martin's over payment calculator here, you would knock at leaat 3 and half years off your mortgage at 5% interest.

That's incorrect - did you change the term to 22 years or leave it at 25?

davilown

TrickyDicky101 wrote: »

That's incorrect - did you change the term to 22 years or leave it at 25?

op's term is 22, assumed at 5%

TrickyDicky101

Then I suggest you check your calculations as @ 5% a £50 pm overpayment will reduce the term by less than 3 years (33 months).

davilown

TrickyDicky101 wrote: »

Then I suggest you check your calculations as @ 5% a £50 pm overpayment will reduce the term by less than 3 years (33 months).

looked at values, not time

jay-jay

Thanks for getting back so quick, added our interest rates now. Looks like we need to be budgeting for a bigger overpayment but after reading these threads I think its definately doable. Just need some willpower. Just need to keep reminding ourselves why we should do it. Found a house I love think I might print it off and stick it on the fridge.
Jay