Over payment advice.........

dell33

Here is my story, in two years time we hope to have 40K saved to knock off our mortgage.

Our initial mortgage was for 160K, we currently have 6 years paid with 14 left. In two years time we would have 8 paid with 12 left.

Our current repayment is 1079 a month. I contacted the bank and I was told our new repayment after knocking 40K off would be 748 pm.

Here is where I am a bit bamboozeled.

The difference between the two repayments is 331 a month and when I multiply this by 144 (the number of repayments left) I get a total of a 47664 which make a saving of 7664 over the 12 years. However I can invest the 40K in a government bond which is giving a guaranteed return of 5% & there fore my 40K will in the 12 years grow to 64K.

Am I viewing this wrong. Would I be better off making my repayments at the 1079 & investing my 40K with the 5% return.

Thanks in advance.

Thrugelmir

dell33 wrote: »

The difference between the two repayments is 331 a month and when I multiply this by 144 (the number of repayments left)

You currently have a 168 repayments left. As still 14 not 12 years to run.

Which Government investment guarantees a net of tax 5% return?

Unwise to assume interest rates will remain at current levels for remaining term of mortgage.

dell33

Thrugelmir wrote: »

You currently have a 168 repayments left. As still 14 not 12 years to run.

Which Government investment guarantees a net of tax 5% return?

It will be two years time before we do this so will only have 144 payments left.

I am actually in Ireland & the government National 10 year Solidarity bond offer a 50% return for a 10 year investment.

My Mortgage is actually fixed for another 6 years & would be fixed for 4 years when we have the 40K together.

Thrugelmir

dell33 wrote: »

It will be two years time before we do this so will only have 144 payments left.

Your bank would quote on current position, not a position in 2 years time.

dell33

Thrugelmir wrote: »

Your bank would quote on current position, not a position in 2 years time.

Would that be better or worse do you think with regard to the amount of the reduced repayment.

I my first post am I viewing the calculations correctly with the figures I have available.

Thrugelmir

dell33 wrote: »

I am actually in Ireland & the government National 10 year Solidarity bond offer a 50% return for a 10 year investment.

Not bad return. Computes to 3.95% AER.

What interest rate do you pay on your mortgage?

That's the way of making direct comparision.

dell33

how do you work the AER if the return is 50% over 10 years & you give an AER figure of 3.95%

getmore4less

Whats the mortgage rate?

numbers suggest about 5.26%


10 year Solidarity bond offer a 50% return for a 10 year investment

is not 5% py. that £60k back if they have not gone bust.

so looking at the numbers. asuming 5.26%

£160k over 20y £1079pm

After 8 years £115,038.31
pay off 40k new payment is £703pm

so the numbers are not right.

Also you have forgoton to take account of the interest the spare money earns
saving 379 @2% net over 12 years gives around £61600

why are you not overpaying as you go?

Thrugelmir

dell33 wrote: »

how do you work the AER if the return is 50% over 10 years & you give an AER figure of 3.95%

Looked at the website.;)

Actual return is actually nearer 47% if I recall correctly.

Product offers 1% per annum interest (taxable) plus a 40% terminal bonus tax free.

So its a product that has to be held full term.

dell33

getmore4less wrote: »

why are you not overpaying as you go?

Firstly our Mortgage is fixed & secondly it really is only in the last year or two that we have managed to save a lot.