Reducing Interest

marky_b_2

Hi, looking for some advice please on here as I am still waiting for Northern Rock to get back to me.

I have a 15 year fixed rated repayment mortgage at 5.09% with Northern Rock, I currently have 13.5 years left to repay. I pay £572 a month and I think the balance is about £69000.

I have some extra cash left over each month so I am thinking of paying this into the mortgage balance, NR will allow me to pay an extra 10% each year with no penalites. I have asked NR to give me a breakdown of how much I would save in interest over the remainder of the term if I continued paying the extra 10% for the life of the mortgage but as yet I have not had a responce from them.

Can anyone give me a ball park figure, I am not attempting to shortening the repayment period, just to pay off the balance.

Thanks

Martinslovechild

Check out the thread on MSE here for some information on this.

However, I can't find a calculator which determines the value of 10% each year (as this obviously reduces year-on-year), but as an example, if you were to overpay by £300 per month over the term, you'd save approximately £11,500 in interest and would reduce the term by nearly half.

I suspect that if you're allowed to overpay only 10%, then you may be looking at a slightly longer term than this as 10% of not-a-lot is not-a-lot, so perhaps it's worth considering swapping the mortgage for a dedicated offset account where there's no 10% maximum, e.g. if.com or Co-Operative Bank's Flexible Tracker if you're out of any redemption period with Northern Rock. This way, you can maintain an overpayment of, say, £400 per month throughout the term, and throw in any bonus payments as & when you receive them.

One question - you say that you're not attempting to shorten the repayment period, but how can you not do that if you're overpaying? The whole idea of making overpayments is to reduce the term rather than maintain the term and merely reduce normal monthly repayments. Get rid of the mortgage, don't carry it around like a ball-and-chain!

marky_b_2

Martinslovechild wrote:

Check out the thread on MSE here for some information on this.



One question - you say that you're not attempting to shorten the repayment period, but how can you not do that if you're overpaying? The whole idea of making overpayments is to reduce the term rather than maintain the term and merely reduce normal monthly repayments. Get rid of the mortgage, don't carry it around like a ball-and-chain!

Thanks very much for the reply, I don't want to shorten or move the mortgage as I have about a £6000 penalty if I change the mortgage terms.

All I want to do is keep paying extra into the mortgage so that where I am paying 570 & 10% a year on a sliding scale to the end of term I would imaging that the final years mortage payment would hopefully be under £500

Sorry if I am not explaining myself properly, mortgages isn't my game

UK007BullDog

Read the small print on the offer letter regarding overpayments and how they are allocated to your particular mortgage deal.

I find that a lot of lenders use the extra payment and instead of reducing the term of the mortgage just reduce the payments. Which is in their interest as it makes more profit for them.

It would be better for you if you continue to pay the same monthly payments and the years reduce instead as you would save a lot more on the interest that way and just think you would be mortgage free so much earlier.

If you want anything done always write to the lender per registered mail.

Guy_Montag

Why not get the best ISA available, which should pay more than 5.09% Pay anything over the 10% in there, then at the end of 15 years, hammer the mortgage with the contents of your ISAs

marky_b_2

Cheers guys for the info, I got back in contact with NR to see what was happening and they told me that I have a full flexible mortgage and I can pay as much as I want extra each month and that interest is recalculated at the end of each month.

So if I overpay it will reduce my interest, they said it will take them about a week to work it out on the basis of me paying a round figure of £620 until I have paid off the balance which will be before my term was due to finish so I will only pay a nominal fee in the last few months as my overcredit will have just about cleared the balance by then.

Once again, cheers for all your help :-)