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Due to pay capital sum off mortgage - how much will it reduce term down if we continue to overpay?

Last post Sat, Mar 17 2012, 8:03 PM by rickisupforit. 6 replies.
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  •  Sat, Mar 17 2012, 8:03 PM

    Re: Due to pay capital sum off mortgage - how much will it reduce term down if we continue to overpay?

    OK all the advice seems to point toward paying the £20,000 immediately off the mortgage which I was tempted to do anyway - I can confirm that I have spoken to our mortgage lender and we do not get penalised for lump sum payments or overpayments. Why will be penalised 2% if we are tied to our mortgage until 2013?
    • Post Points: 5
  •  Thu, Mar 15 2012, 8:47 AM

    Re: Due to pay capital sum off mortgage - how much will it reduce term down if we continue to overpay?

    Maxsteam is right that you cannot guarantee what your repayments will be next year or the year after. You also have to factor in that you have a penalty to pay until next year which will likely add another £1200 to your costs but based on a simple calculation I estimate that based on current rates available you could reduce your mortgage to around 8 years duration and still be paying £448 per month (give or take).

    The benefits of paying the money off the mortgage now would be that once it has been paid then it cannot have any further interest charged against it at what ever the rate will be, this can often save you thousands of pounds on your total cost. In your case I think I worked it out to around £9,000 savings on interest payments by paying off the £25,000 now and reducing term by 5 years. (based on current rates)

    Investment could help but the rates available for this are quite poor at present and while you may make an eventual return on your inverstment it will be offset by the interest that you will have paid on your current mortgage balance over the current term. Once the money is paid of the mortgage then it is paid off and will not have any further intertest charged against it.

    To discuss your best options I would suggest that you go and speak to a financial adviser who can guide you through your options and will most likely be able to show you the whole of market mortgage options.

    Be aware that if you are tied to your mortgage till 2013 that you WILL have to pay a penalty to your lender to be released from this contract and I would estimate that this would be at least 2% (£1200 approx) of your existing mortgage balance

    • Post Points: 20
  •  Wed, Mar 14 2012, 11:54 PM

    Re: Due to pay capital sum off mortgage - how much will it reduce term down if we continue to overpay?

    OK thanks very much for the advice.
    • Post Points: 5
  •  Mon, Mar 12 2012, 10:35 PM

    Re: Due to pay capital sum off mortgage - how much will it reduce term down if we continue to overpay?

    Your mortgage is due to finish in 2025. So, if you make a lump sum payment and interest rates change, your monthly payments will be recalculated, I expect, so that the mortgage will still finish in 2025. It is possible that your annual mortgage statement will tell you how much is outstanding on each part of the mortgage and I expect that £20k now would be more than enough to cover £25k in 2025. Your lender ought to let you make the lump sum payment against the endowment part of the mortgage but it is important that they don't say that, as £25k is due in 2025, you can pay £20k now and £5k later. It is also important that you don't incur the costs of a new mortgage (you may be offered this if you ask for too many changes).

    You should check that overpayments and lump sum payments are allowed (and on what terms) and, if you want the mortgage to finish in 2019, you can use a loan repayment calculator to estimate whether this can be achieved. It is not possible to give a definite answer of how much you'll need to pay each month because it is likely that interest rates will change between now and the end of the mortgage.

    If in doubt, as I stated, you can invest the proceeds of the endowment policy so that this investment will cover the £25k in 2025.

    • Post Points: 35
  •  Mon, Mar 12 2012, 9:11 PM

    Re: Due to pay capital sum off mortgage - how much will it reduce term down if we continue to overpay?

    Thanks for the advice. Sorry you said it would clear the £25k in 2015 but what about the balance of the mortgage? If we paid £20k now this would leave an outstanding balance of £42,485. I really wanted to know how long to pay off the whole mortgage.
    • Post Points: 20
  •  Mon, Mar 12 2012, 7:08 PM

    Re: Due to pay capital sum off mortgage - how much will it reduce term down if we continue to overpay?

    Another option that you've not mentioned is to invest the £20k for 12 years. With a conservative 3% growth, this would be worth about £28½k in 2025.

    Different lenders have different rules and some make charges for lump sum payments and overpayments but unless there is something unusual about your mortgage, paying £20k now and maintaining current monthly payments (or maintaining a similar overpayment if rates rise) ought to clear the £25k in 2015

    • Post Points: 20
  •  Mon, Mar 12 2012, 5:32 PM

    Due to pay capital sum off mortgage - how much will it reduce term down if we continue to overpay?

    We have a mortgage currently standing at £62,485 which is part endowment and part repayment. The endowment part is £25,000 and the endowment policy is due to mature at the end of this year although it is not assigned to the mortgage and the mortgage runs until 2025. The endowment policy is currently valued at £20,000 although some terminal bonuses may be added obviously this leaves a shortfall (we had already taken action and switched more over to repayment but not enough). We are currently paying £448 per month on a standard variable rate and I wanted to know if we pay the £20,000 lump sum off the mortgage in December 2012 and maintain our current payment of £448 per month assuming the current variable rate how long this would reduce the mortgage term down by? We have asked our mortgage provider this and they were unable to give an answer. We don't need an exact date but a rough idea would be great. Also we are assuming that because the endowment has not reached the target amount this will not matter as it is not assigned and is not due till 2025 hopefully the overpayments will cover this and still reduce the term down. Ideally we would like to pay off our mortgage by 2019.
    • Post Points: 20