Mortgage overpayment : mind-blowing!

mastubbs

[FONT=&quot]Hi All,[/FONT]

[FONT=&quot]I've been playing around with the MSE mortgage overpayments calculator and it's blown my mind! I'm hoping somebody can help explain...[/FONT]

[FONT=&quot]I have 2 mortgages - 77k (24yrs, 2.1%) and 253k (23 yrs, 1.8%). I have recently come into some money (for ease call it 77k). I want to pay off some of my mortgage with this. In my tiny brain it seemed obvious that the best one to pay off would be the small one. It is about to mature so no early repayment charge applicable. With the 77k i could entirely pay this off and so pay no further interest etc. However, despite this (and it being at a higher rate), it appears from the MSE calculator that i would be best using the money to pay off some of the bigger mortgage! This has totally blown my mind![/FONT]

[FONT=&quot]Am i using the calculator wrongly - or have i missed something major?! (PS i know i wouldnt be able to pay off the entire 77k in one year on the larger mortgage as the max overpayment is 10%, but lets ignore that for simplicity)[/FONT]

[FONT=&quot]Thanks very much in advance for any help :-)[/FONT]
[FONT=&quot]
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[FONT=&quot]Here are the figures i used:[/FONT][FONT=&quot]
[/FONT]
[FONT=&quot]Calculation 1:[/FONT][FONT=&quot]
[/FONT]
[FONT=&quot]mortgage debt £253000[/FONT]
[FONT=&quot]mortgage term 23y[/FONT]
[FONT=&quot]repayment mortgage[/FONT]
[FONT=&quot]interest rate 1.8%[/FONT]
[FONT=&quot]one off overpayment £77000[/FONT]
[FONT=&quot]no recurring overpayment
[/FONT]
[FONT=&quot]Result 1:[/FONT]

Overpaying would save you £31,054 in interest alone, and mean you pay the debt off in full 8 years & 0 months earlier.

Normally you repay £1,120 per month. If you overpay a lump sum of £77,000, you'd be mortgage free 8 years and 0 months earlier. Your total payment over this period would be £277,947.



[FONT=&quot]Calculation 2:[/FONT]

[FONT=&quot]mortgage debt £77000[/FONT]
[FONT=&quot]mortgage term 24y[/FONT]
[FONT=&quot]repayment mortgage[/FONT]
[FONT=&quot]interest rate 2.1%[/FONT]
[FONT=&quot]one off overpayment £77000[/FONT]
[FONT=&quot]no recurring overpayment
[/FONT]
[FONT=&quot]Result 2:[/FONT]

Overpaying would save you £20,955 in interest alone, and mean you pay the debt off in full 23 years & 11 months earlier.

Normally you repay £341 per month. If you overpay a lump sum of £77,000, you'd be mortgage free 23 years and 11 months earlier. Your total payment over this period would be £77,135.

MovingForwards

Option 3
Pay off your small one.
Overpay your big one by the now available £341 per month.

How does that change things?

mastubbs

That's the one! God bless you!
:beer: