Calculation Confusion

RedBalloon

Overpaying Mortgage:

Halifax
Currently £99,958 at 4.49% for 19 years
Overpayment allowed for yr = £10,021
Monthly payment - £650

Am I better overpaying in small lumps throughout the year (to make up the £10,021) to 'save on interest' immediately (term only gets adjusted at the end of the year)
or
Just pay the full £10,021 at the end of this year and shorten the term then? (currently savings not much different at 4.85%)

I'd prefer the latter, but not sure if I'd miss interest savings during the year?

grumpy_codger

I'm pretty sure the interest is calculated daily, so the earlier you overpay, the less interest is added to the balance. This works even if they reduce your monthly payments as a result of overpayments. Not sure if they do this during the year. 
Are you sure they will adjust the term, not the monthly payments at the end of the year?

Hoenir

Interest is calculated daily and charged monthly. The sooner the capital balance owed is reduced. The greater the saving will be. 

Edi81

Halifax don’t change the term  - lots of posts on here about that.  

Overpaying now means you pay less interest immediately. 

RedBalloon

Thanks everyone for your help.

 Edi81 said:

Halifax don’t change the term  - lots of posts on here about that.  

Overpaying now means you pay less interest immediately. 

Hopefully they will still let me shorten the term at the end of the year when they 'recalculate'.

I've now read a few posts on here. People don't seem happy.
I'm not sure why, if the above is the case, why people are unhappy that the term isn't immediately shortened - any idea?

amnblog

I'm not sure why, if the above is the case, why people are unhappy that the term isn't immediately shortened - any idea?

Because they believe it will have a material impact when in the vast majority of cases it will not. Unless you have funds to overpay by more than your 10% allowance every year it makes no difference.

BikingBud

amnblog said:

I'm not sure why, if the above is the case, why people are unhappy that the term isn't immediately shortened - any idea?

Because they believe it will have a material impact when in the vast majority of cases it will not. Unless you have funds to overpay by more than your 10% allowance every year it makes no difference.

Let's not mislead people by pigeon holing their financial situation. If you do overpay regularly by the 10% per year and get the loan term shortened it does save you money. It can save you a lot of money.


The fact that many might not have the surplus cash and are not able to sustain this overpayment doesn't alter that fact. 

 Although this is not my mortgage it does demonstrate the difference that shortening the term can have. Yes it is extreme and not everybody can do this but it appears Halifax are inhibiting this for many.

I am quite happy with a slightly modified blue line with a bubble to pay when the current 5yr fix finishes and an expectation to pay around £6.5k in interest a saving of around £24K.

I also view overpayments as reducing the tax I must pay, money I do not have to earn another 22k per year in payments and 24k to cover interest means I do not have to pay tax on it. 

And I can then focus or a better measure of wealth, freedom and leisure time!

It is overall financial health that enables that perspective but sometimes we have to look beyond the cash.

amnblog

BikingBud said:

amnblog said:

I'm not sure why, if the above is the case, why people are unhappy that the term isn't immediately shortened - any idea?

Because they believe it will have a material impact when in the vast majority of cases it will not. Unless you have funds to overpay by more than your 10% allowance every year it makes no difference.

Let's not mislead people by pigeon holing their financial situation. If you do overpay regularly by the 10% per year and get the loan term shortened it does save you money. It can save you a lot of money.


The fact that many might not have the surplus cash and are not able to sustain this overpayment doesn't alter that fact. 

 Although this is not my mortgage it does demonstrate the difference that shortening the term can have. Yes it is extreme and not everybody can do this but it appears Halifax are inhibiting this for many.

I am quite happy with a slightly modified blue line with a bubble to pay when the current 5yr fix finishes and an expectation to pay around £6.5k in interest a saving of around £24K.

I also view overpayments as reducing the tax I must pay, money I do not have to earn another 22k per year in payments and 24k to cover interest means I do not have to pay tax on it. 

And I can then focus or a better measure of wealth, freedom and leisure time!

It is overall financial health that enables that perspective but sometimes we have to look beyond the cash.

Very nice - but I believe you misread my post. My point was that not shortening the mortgage term on overpayment does not have a material effect for most borrowers, clearly overpayments do.

RedBalloon

Hoenir said:

Interest is calculated daily and charged monthly. The sooner the capital balance owed is reduced. The greater the saving will be. 

I'm going to call them again today to check.

My savings pay 4.85% interest monthly, so still trying to work out if it would be better to overpay with 4.49% mortgage interest, if that is daily/monthly - or put it into savings until the 'annual recalculation'. 

I could do with some graphs!  

Hoenir

RedBalloon said:

Hoenir said:

Interest is calculated daily and charged monthly. The sooner the capital balance owed is reduced. The greater the saving will be. 

I'm going to call them again today to check.

My savings pay 4.85% interest monthly, so still trying to work out if it would be better to overpay with 4.49% mortgage interest, if that is daily/monthly - or put it into savings until the 'annual recalculation'. 

I could do with some graphs!  

Is that 4.85% per annum ? Compounding 4.85% a month would result in a much higher figure. 

As matters stand you are better off retaining the money in savings. If the savings aren't taxable. At a 20% tax rate 4.85% nets down to 3,88% after tax. 

Halifax aren't going to give you advice as to what to do 

BikingBud

amnblog said:

BikingBud said:

amnblog said:

I'm not sure why, if the above is the case, why people are unhappy that the term isn't immediately shortened - any idea?

Because they believe it will have a material impact when in the vast majority of cases it will not. Unless you have funds to overpay by more than your 10% allowance every year it makes no difference.

Let's not mislead people by pigeon holing their financial situation. If you do overpay regularly by the 10% per year and get the loan term shortened it does save you money. It can save you a lot of money.


The fact that many might not have the surplus cash and are not able to sustain this overpayment doesn't alter that fact. 

 Although this is not my mortgage it does demonstrate the difference that shortening the term can have. Yes it is extreme and not everybody can do this but it appears Halifax are inhibiting this for many.

I am quite happy with a slightly modified blue line with a bubble to pay when the current 5yr fix finishes and an expectation to pay around £6.5k in interest a saving of around £24K.

I also view overpayments as reducing the tax I must pay, money I do not have to earn another 22k per year in payments and 24k to cover interest means I do not have to pay tax on it. 

And I can then focus or a better measure of wealth, freedom and leisure time!

It is overall financial health that enables that perspective but sometimes we have to look beyond the cash.

Very nice - but I believe you misread my post. My point was that not shortening the mortgage term on overpayment does not have a material effect for most borrowers, clearly overpayments do.

Double negative and double speak.

I think we are in the same space, small overpayment and then reducing subsequent payments to sustain original loan period will minimise benefit.

That is my whole point that Halifax appear to be enforcing that position. 

Either way I feel that regulars on this board have their own ideal and others that come with a lower level of understanding seeking advice might not get some of the nuance or indeed the options that might better suit their longer term financial health.

But we should provide the facts, underpinned by the maths, including where necessary providing the knowledge to challenge their lenders, to enable them to make the decisions.