Mortgage overpayment

keepingfitgirl

Hi all 

Can you makes sense of this for me coz numbers and I don’t go together. 😂

We are due to remortgage end of December. We will owe £290k.

We have £50k savings so are going to pay that off so we need to now borrow £240k.

I’ve been on a mortgage calculator and I can’t understand Why in 5 years time the balance we will owe is not £50k different. 

If we stick at £290k our payments are £1724 per month and in 5 years we will owe £236,587

If we use our savings and borrow £240k our payments are £1427 per month and in 5 years we will owe £195,796

Just seems odd that by lowering our borrowing by £50k overall , in 5 years there’s only a difference of  £40,792 on the balance compared to if we didn’t pay our savings off and stayed at remortgaging £290k.

I know it’s £290 a month less on payments so £17,820 over the 5 years so in theory is it  £58,612 . 

Just seems a lot of money to pay off and it doesn’t  seem to reflect much to what we gonna owe in 5 years time

Hope I’ve explained that right and someone can help me understand it all. 

TIA

DE_612183

with the lower monthly payments you are paying less off the capital.

of course if you changed the term you would see the difference drop down more, but your payments would be higher.

your lower monthly payment will be for the whole term of the mortgage - not just the 5 years.

Jemma01

You haven't mentioned what the interest is? And how much of that you're paying and will be paying until the end of term? You should use a spreadsheet that shows you every year how much you're paying on capital and interest until the end of term (easier to visualise).

Overpaying saves you the interest in the long run you have to pay on the mortgage. The quicker you pay, the less interest you pay. You could say "I'm gaining savings from the 50k, more than the interest I'm paying on the mortgage".. but even then, you need a good set of calculations including expected change of rates on savings and mortgage to know which is best.

Without all the interest numbers and any investments you're doing with the 50k, it's hard for anyone to answer you.

I was playing with chatgpt the other day to work out how much interest payments am I saving if I continue to make the same overpayments every month, very insightful. I suggest you use it with all the numbers 

GrumpyDil

Answer above as you are making slightly smaller payments off the capital element.

You could choose to shorten the mortgage term or simply overpay each month.

keepingfitgirl

The rate is going to be 3.78%

I have the £50k in premium bonds so thought would be best to probably pay that off so I remortgage for £240k instead of £290k