Overpayment Calculation Help

argomatt

Hi,

I am struggling to calculate a figure which I would like to know. Could someone with a better brain than me please help me with how to do it!

I am making a regular overpayment of £426.47 per month to my mortgage, and I would like to be able to work out how much that reduces my monthly contractual payment by each time I do it.

For example..
If I keep the overpayment going as it is for a year, instead of my contractual payment being £798.53 as it is now, might be down to £750.

If I knew how much of an effect it was having, it would help keep me motivated to make the payments!

I'm sorry I haven't explained myself well, but I hope someone can help!

Thank you

:beer:

Nearlyold

It will change each month because as you pay down your mortgage each overpayment will represent a greater proportion of the outstanding amount. You can get an approx. figure by using the % pro rata method i.e. if your overpayment is x% of your mortgage then your contractual repayment will reduce by the same x%

bexster1975

Hi

I think you need to use the mortgage tool on this website.

Your monthly repayments will depend on a few things: are you on a fixed rate, what is the rate, when does it change, what does it change to, are you on repayment or interest only. I think if you use the tool on the site and plug that info in you will get your answer

Bexster

argomatt

Thank you..
If I have used the calculator correctly (!) My contractual payment should be going down by about £2.11 for every month I make the overpayment.

It doesn't sound a lot but over the 23 years 6 months remaining term, I guess it will eventually make a bigger impact.

:beer:

bexster1975

Hi

That's great news!

Remember, every pound you overpay is a pound you never pay interest on again. Also, I guess your mortgage interest rate us pretty low ( most are) give yourself a fright and see the effect if your interest rate doubled ( so what, 4-5%?).
Though I didn't have a mortgage at the time, I have heard the legends of 14% interest on mortgages from the seventies :eek:

Bexster

bexster1975

Also, use the overpayment tool to see how long and how much interest you will save on the original mortgage term.

E.g £170000 at 3.5% over 25 years. Overpaying what you do would save 12 years and 6 months and almost £35000 in interest!!

Great incentive

argomatt

I have got my mortgage statement here, which is what got me started on this in the first place!

I have got 3 years remaining at a fixed rate then it says my payments will go onto the standard variable rate which would mean paying about £250 a month more :eek:

Although with my overpayment, I am already paying more than that anyway, it's still quite a surprise how much it is affected.

I am thinking of changing my career path slightly soon, which might require a bit of a pay cut to start with, so if I overpay while the going is good, it might mean a bit less stress later on!

bexster1975

Hi

I couldn't agree more.

Also just worth checking whether you can get overpayments back if you need to. Some banks say yes, others no. This should inform planning as to whether growing your emergency fund first or overpaying is best. Why not try setting up your budget based on your pay cut now and seeing if it can be done? That way you will save/overpay loads.

The low interest rates currently have certainly lulled people into a false sense of security.

Bexster

argomatt

It looks like I wouldn't be able to get my overpayments back, though I am not too worried about that at the moment, because I saved a small emergency fund before I started making the overpayments.

The money which I was using for savings and now using for overpayments has come from when loan payments have finished, when bills have reduced, and when I have got pay rises, so in effect it is the cash which I never had and hadn't got used to spending!

:beer:

getmore4less

You can do a one off with a simple calculator.

There are 4 variable to a mortgage,
amount owing
Rate
term
payment

you only need three.

For your calculation you need rate and term, you then vary the amount owing by the overpayment, and that gives you the payments.

the change in payment for a given overpayment will vary as the other bit changes.

http://www.whatsthecost.com/mortgage.aspx

your payment £798.53
overpayment £426.47
term 23 6months

you don't give mount or rate, guess at 2% £177k (round down to 23year)
normal payment £800.60, with a single £427 overpayment £798.67 £1.93 difference.

I am not sure that change in payment is that relevant to motivation, things like reduced term or reduced overall cost seem more more significant.

One you set a total payment, which is the real driver really and determines your remaining debt and term,
you can calculate just about anything from that.

just set a calculator to interest only and set full payment.