overpayment question...

james3333

hi all,
just wondering if anyone could answer this question... i have a mortgage of 76k left over 22 years. @3.99% if i overpaid just one payment of £1,000 how much would that take off the mortgage? in other words how much will that £1,000 'turn into' if you like

thanks

Gary123456790

Hi,

Straight away it will of course take £1000 off the outstanding balance but you'll save lots of interest by having a smaller balance, which I think is what you're alluding to!

Off the top of my head you will save around another £900 in interest, maybe a bit less.

To work it out more accurately add up 22 years of your 12 monthly payments, and divide this by the mortgage outstanding.

e.g. if you'll pay a total of 152k back then divided by 76 = 2, i.e. £2 to pay back for every £1 borrowed.

From this you will know how much it will save in interest. This wont be 100% accurate as it'll presume you're on 3.99% for the whole term, but it'll be accurate enough to give you a good idea.

Check there are no penalties for making an overpayment, and it is also a good idea to keep an emergency fund incase the car/boiler/etc breaks!

Gary.

james3333

cool, good to know im nearly 'doubling' my money then by overpaying.
i have a good contingency and make regular over payments every month, what ever i can wether it be £30-£300 i just lump what i can across to the mortgage! every little helps as they say.

Gary123456790

Yes you are right to think this way, I do the same. The little amounts do add up and take years off the mortgage.

I think a lot of people do not realise the benefit of this - perhaps not suprising as we are not really encouraged this day and age to do things which will benefit us in 15 years time...

If you're going to buy a cd for £10, it is really costing you £20 because if you put it in the mortgage, you'd gain another £10!

Gary.