The Lemon Fool

Is there a formula for calculating the saving by making an overpayment on a repayment mortgage.

Obviously you can calculate the interest saving fairly easily but how do you account for the capital part.

So on a 500k mortgage at 5.29% over 35 years

£2,616.66 would be monthly payment
£2,204.17 of that is interest

So if you overpay £250, how much would the monthly payment reduce to.

More than the £1.10 monthly interest saving obviously.

You could build a complicated spreadsheet, but Martin's gang have an online tool https://www.moneysavingexpert.com/mortg ... alculator/

Most overpayment calculators assume you keep the monthly payments the same. Not seen one that gives you the option to reduce them.

The reason is probably because if you overpay and reduce your payments by the reduced interest, then the mortgage is pretty much unaffected and the repayments reduce by the drop in interest, as you're still paying the same amount off the capital each month. It does change slightly, but £250/500k is such a small amount it is negligable.

If you do keep the payments the same then the mortgage ends earlier, the calc linked to above says by 1 month.

The calcuator is good for showing what a huge difference a very small regular overpayment makes. Something I fortunately discovered very early on when I first remortgaged and noticed the 'savings' were by increasing the term by 3 years back to the original, so I dropped it 2 more years for about an extra tenner a week. In this example increasing the payments by £26.20/month, 1% of the payment saves £20k in interest (4% of the total interest) and clears the debt 1 year (or nearly 3% of the term) sooner.

Paul

I use the Loan Amortization Template in Excel. This allows quite a bit of flexibility to model the effect of overpayments.

kempiejon wrote:You could build a complicated spreadsheet, but Martin's gang have an online tool https://www.moneysavingexpert.com/mortg ... alculator/

It doesn't answer the question though. I've played with this.

DrFfybes wrote:Most overpayment calculators assume you keep the monthly payments the same. Not seen one that gives you the option to reduce them.

The reason is probably because if you overpay and reduce your payments by the reduced interest, then the mortgage is pretty much unaffected and the repayments reduce by the drop in interest, as you're still paying the same amount off the capital each month. It does change slightly, but £250/500k is such a small amount it is negligable.

If you do keep the payments the same then the mortgage ends earlier, the calc linked to above says by 1 month.

The calcuator is good for showing what a huge difference a very small regular overpayment makes. Something I fortunately discovered very early on when I first remortgaged and noticed the 'savings' were by increasing the term by 3 years back to the original, so I dropped it 2 more years for about an extra tenner a week. In this example increasing the payments by £26.20/month, 1% of the payment saves £20k in interest (4% of the total interest) and clears the debt 1 year (or nearly 3% of the term) sooner.

Paul

I did try inputting x2 lots of info into a mortgage calculator with one 250 less but still over 35 years it saved £1.331 so 21p more ish

tacpot12 wrote:I use the Loan Amortization Template in Excel. This allows quite a bit of flexibility to model the effect of overpayments.

I can suggest trying this.