How to Calculate Overpayment benefit
odgeuk
Posts: 19
Forumite
One for the Financial experts. I'm not sure how to calculate which of these two options saves me the most money.
Mortgage balance: 132,612.20
Remaining Term: 18yrs 6mnths
Current Interest Rate: 4.14%
I have £11,000 available to overpay in a lump sum (keeping the monthly payments the same).
The £11,000 is in a Cash ISA which will earn me £484, if I keep the money in it for another 5mths (thus completing the first year of the ISA and getting 4.4%).
How can I work out if the Mortgage interest I could save (also considering the adjustment to the capital / interest ratio) would be more or less than £484, over that 5mnths?
Mortgage balance: 132,612.20
Remaining Term: 18yrs 6mnths
Current Interest Rate: 4.14%
I have £11,000 available to overpay in a lump sum (keeping the monthly payments the same).
The £11,000 is in a Cash ISA which will earn me £484, if I keep the money in it for another 5mths (thus completing the first year of the ISA and getting 4.4%).
How can I work out if the Mortgage interest I could save (also considering the adjustment to the capital / interest ratio) would be more or less than £484, over that 5mnths?
0
Comments

Your ISA is earning a very high rate of interest if it's £484 earnt over the next 5 months. Somethings not right.
£484 is a rate of 4.4% on an annualised basis. Higher than you are paying on the mortgage. For the moment you are better off leaving the money in the ISA.0 
Hoenir said:Your ISA is earning a very high rate of interest if it's £484 earnt over the next 5 months. Somethings not right.
£484 is a rate of 4.4% on an annualised basis. Higher than you are paying on the mortgage. For the moment you are better off leaving the money in the ISA.
Although the savings rate is higher than my mortage rate, there is also the factor that, because monthly mortage interest is calculated on the entire Capital remaining, I'd not only have reduced my Mortgage Lump sum, but also more of my monthly repayment is attacking the Capital instead of going into interest. That's the maths I can't figure out.0 
Try here for yourself calcs:
http://www.locostfireblade.co.uk/spreadsheet/Index.html
Set up Mortgage 1 as your current agreement and adjust Mortgage 2 to assess any changes, monthly or annual repayments, ERCs etc
If you paid the 11k off now:
If you paid the 11K off in May:
These show the saving that is banked by overpaying, in Jan and in May. They show a saving of over 11k in interest and reduces the term by about 2 years.
But bear in mind the interest, or gain you may get from other sources may be better, it is not only the £484 this year but that might compound up to give you a greater figure, £11k @5% for 18 years might return £27.8k.
Other routes might also work but you need to determine what's best for your circumstances and your risk appetite.Mortgage: £200,000 (Sep 2021) Initial MF date: Sep 2031
Int Rate: 1.19% fixed until Nov 2026 (8.5% follow on rate?)
Cap+Int Repaid: £65100 (32%) £80,704 (40%) £82468 (40.48%)£89507 (43%) £91267 (44.7%) £98,309 (48.02%)
Target MF date: Nov 2026 Current MF date: Dec 2029, Nov 2029, Apr 2029, May 2029
Target Int Saving: £25,561 Current Int Saved: £12,350, £13,421, £16,991, £17,989, £18,699, £20,495
Overpayments suspended and surplus cash currently being diverted to high interest savings.1 
odgeuk said:Hoenir said:Your ISA is earning a very high rate of interest if it's £484 earnt over the next 5 months. Somethings not right.
£484 is a rate of 4.4% on an annualised basis. Higher than you are paying on the mortgage. For the moment you are better off leaving the money in the ISA.2 
I've done some Calcs, working out interest monthly, with and without overpayment, and adjusting each month to reflect that the capital is reduced by the repayment the month before.
If I've done my maths right, overpaying right away would save me £191 in interest over the next 5mnths and reduce my borrowed capital by £1,754.87 at the end of the 5mnths.
Keeping the money in the ISA till it hits it's anniversary (5mnths more) would earn me £484 and my Mortgage Capital Borrowing would have been reduced by £1,601.86 in that time. However, I'd then have £484 extra to overpay, bringing capital reduction to £2,085.86
So I guess it is as simple as "if your savings rate is higher than your mortgage rate, then it's better to save", but I suspect that this balance changes over longer time periods, what with the complexities of the Capital / Interest ratio changing as the Mortgage Loan is repaid.
0 
BikingBud said:Try here for yourself calcs:
http://www.locostfireblade.co.uk/spreadsheet/Index.html
Set up Mortgage 1 as your current agreement and adjust Mortgage 2 to assess any changes, monthly or annual repayments, ERCs etc
If you paid the 11k off now:
If you paid the 11K off in May:
These show the saving that is banked by overpaying, in Jan and in May. They show a saving of over 11k in interest and reduces the term by about 2 years.
But bear in mind the interest, or gain you may get from other sources may be better, it is not only the £484 this year but that might compound up to give you a greater figure, £11k @5% for 18 years might return £27.8k.
Other routes might also work but you need to determine what's best for your circumstances and your risk appetite.
0 
Hoenir said:odgeuk said:Hoenir said:Your ISA is earning a very high rate of interest if it's £484 earnt over the next 5 months. Somethings not right.
£484 is a rate of 4.4% on an annualised basis. Higher than you are paying on the mortgage. For the moment you are better off leaving the money in the ISA.
Look for compound interest calculators and use something like this
and if the year on year increase is better than the Int Paid between M1 and M2, from the comparison sheet on the linked excel, then saving is better, before other things considered:
Mortgage: £200,000 (Sep 2021) Initial MF date: Sep 2031
Int Rate: 1.19% fixed until Nov 2026 (8.5% follow on rate?)
Cap+Int Repaid: £65100 (32%) £80,704 (40%) £82468 (40.48%)£89507 (43%) £91267 (44.7%) £98,309 (48.02%)
Target MF date: Nov 2026 Current MF date: Dec 2029, Nov 2029, Apr 2029, May 2029
Target Int Saving: £25,561 Current Int Saved: £12,350, £13,421, £16,991, £17,989, £18,699, £20,495
Overpayments suspended and surplus cash currently being diverted to high interest savings.0 
BikingBud said:Hoenir said:odgeuk said:Hoenir said:Your ISA is earning a very high rate of interest if it's £484 earnt over the next 5 months. Somethings not right.
£484 is a rate of 4.4% on an annualised basis. Higher than you are paying on the mortgage. For the moment you are better off leaving the money in the ISA.
Look for compound interest calculators and use something like this
and if the year on year increase is better than the Int Paid between M1 and M2, from the comparison sheet on the linked excel, then saving is better, before other things considered:0
Categories
 All Categories
 341.8K Banking & Borrowing
 249.7K Reduce Debt & Boost Income
 449.2K Spending & Discounts
 233.9K Work, Benefits & Business
 606.1K Mortgages, Homes & Bills
 172.5K Life & Family
 246.8K Travel & Transport
 1.5M Hobbies & Leisure
 15.8K Discuss & Feedback
 15.1K Coronavirus Support Boards