I am interested in this topic too.

Is there a formula for working out the savings you make by overpaying, and then comparing it with what you would make on a bond / fixed rate savings scheme per annum?

Let's say:

Amount owed £100k

Mortgage Rate 2.5% (for the sake or argument assume the rate stays the same over the term, let's also assume no early repayment charges)

Remaining payments / Mortgage term: 8 years

Overpayment: £400

Amount of interest saved £xxxx / Mortgage payed off xx months sooner

So for comparison - we invest £400pm for the length of the overpayments (i.e. 8 years - minus the months saved due to overpayment)

So the quesiton is what rate of annual return is needed to beat the mortgage overpayment interest saved?

Cheers,

Allan

Give or take it will be around 8 years but do also remember that interest rates are at a record low at present and most likely will be 2%-3% higher in 4-5 years and also be aware not to overpay by more than 10% of your mortgage balance as this will lead to ERC's being payable. Most lenders will allow you to overpay by around 10% of the existing mortgage balance but be aware that some lenders have lower limits such as 5% or £500 per month maximum overpayment.

I assume when you say larger amounts on a yearly basis you mean an yearly equivalent of your monthly overpayment as in £6000 overpayment per annum (£500 x 12 months)

If this is the case then it is better to over pay per month as most mortgages are calculated on a daily or monthly basis which means that at worst your interest will be recalculated once a month and the following months interest will be recalculated on this new lower balance which will attract slightly less interest as the balance is slightly less due to the overpayment.

This means that the interest is always being calculated on a decreasing balance where as on a yearly payment the balance is only going to decrease once meaning that for the remainder on the year the interest will still be calculated on the same balance and not a decreasing balance. It won't mean a massive amount of difference, maybe only £100 - £200 per annum on £100,000 mortgage but it depends if you want this £100 to go into your pocket and pay a whole weeks tesco bill or do you want it to go into the lenders pocket and pay for a director to have a starter at The Ivy. It also means that there will also be £100 less balance to charge interest on moving forward....on top of what ever overpayments you have also made. Win Win!

House value is high enough that you will have access to most of the products on the market.

Please note that I said in my last post that most average rates are around the 4% mark. This is not true, they are closer to 3% than 4% (depending on fees) but if you work on 4% then you will only come out smiling if you achieve better than your expectations.

Your total borrowing at present is £115,453 (give or take)

If you wanted to work on a budget of £1430 thn at a rate of 4% (about average in current climate(depending on loan to value)) the you would be looking at around £1430 over 8 years to have the whole debt on repayment. This of course would be subject to the lenders passing you for affordability and not what you think you can overpay per annum.

Becareful renegotiating anyelement of your mortgage incase you have any early repayment charges to be applied for early redemtion of any part of the loan.

Speak to a mortgage broker for more information on this - do not speak to a banks mortgage monkey. They are not qualified to give advice on this and the banks DO NOT let them give advice any more....only to present you with option that you decide can choose from.

Good Luck

I have a 121,000 mortgage with Lloyds TSB which is made up of various parts. The main mortgage has roughly 8 years to go and has a balance of £38,214.02. paying £430 per month repayment. The other parts are at the moment paid on an interest only basis

£20,420.46 paying £42.54 interest only with a remaining term of 11 years and 8 months

£6.980.17 paying £14.47 interest only with a remaining term of 4 years and 5 months

£13,704.01 paying £28.42 interest only with a remaining term of 3 years and 8 months

£21.991.81 paying £45.82 interest only with a remaining term of 8 years and 5 months

£14.144.84 paying £39.89 interest only with a remaining term of 11 years and 10 months

I will in the near future be able to pay roughly £800 to £1000 more to my mortgage every month and was looking for advice on the best/quickest way to reduce my total time for repaying the TOTAL mortgage to somewhere between 5 and 8 years if that is possible. Is it best to save into ISA's and clear the total of every few years or make overpayments? Or is there a better way to do this? I would be very grateful for any advice on this matter. My mortgage rate at the moment is 2.5%