Re: Should I make overpayments on mortgage?


"Sharky" <bill@xxxxxxxxxxx> wrote in message news:4mriu7F7jnhmU1@xxxxxxxxxxxxxxxxx
I am 4 years into a 25 year variable rate capital repayment mortgage
and recently decided to make an overpayment of about £1600. I've now
received a letter telling me the monthly payments will reduce from
£415.84 to £413.15.

I was expecting something a bit more spectacular than a £2.69
reduction. Can anybody shed any light on whether it is worth making
regular overpayments? I keep an ISA topped up so I'm not bothered about
keeping 'rainy day' funds.

BTW the bank is HSBC and the original loan was £68K

Thanks for any advice!

I may be wrong but AFAIK a repayment mortgage is geared to pay mostly
interest element in early years of the mortgage and the capital towards
the end.

Yes.

Thus , you may have paid of 2% of the original mortgage sum but since
the total amount payable over 25 years is around 3 times the mortgage
sum with interest - ie 3 x 68 = £204k you have only paid .6% of the
actual total owing so can only expect your monthly payment to go down by
this amount, and this worked out as £3.26.

You fail to account for the interest saving he'll make on the £1600.

The mortgage payment is directly proportional to the amount owing - so if the current
debt is £64k and he pays £1600 then his payments should reduce by 2.5%, ie about £10.

--
Andy


.

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