Editor's Blog1 min ago
Overpaying mortgage
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2 examples -If my repayment mortgage rate is 4.0% - and i overpay within the allowed amounts does that mean i have paid 96% of capital?- compared to say, a repayment mortgage rate of 6.0% which is only 94% of capital paid? - in other words overpaying at lower intrest rates means more of capital is paid off- is this the best calculation or are my sums irrelevant?
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I think you sums are irrelevant (you suggested it).
If you had a mortgage of �100k and the interest rate is 4%, you have to pay �4k pa in just interest alone. But if you overpaid by �2k in the year (making a total payment to the lender of �6k in the year), the extra comes of the capital sum. So at the end of the 1st year, the outstanding balance is �98k.
So in the second year, the interest payment alone is 4% of �98k, which is �3920. If you again paid the company �6k, this time �2080 would come off the capital sum (6000-3920), so the outsyanding balance is now only �95920.
In the third year, the interest payment would be 4% of �95920, or �3837. So you again paid �6k, the capital has now reduced to �93757.
The common thread here is that every year, the amount of decrease in the capital sum escalates - �2k in the first year, �2080 in the 2nd year, �2163 in the 3rd year.
I haven't a clue what you are trying to prove with the 6% figures. Just remember that the more you can afford to pay off the capital sum, the quicker it decreases.
If you had a mortgage of �100k and the interest rate is 4%, you have to pay �4k pa in just interest alone. But if you overpaid by �2k in the year (making a total payment to the lender of �6k in the year), the extra comes of the capital sum. So at the end of the 1st year, the outstanding balance is �98k.
So in the second year, the interest payment alone is 4% of �98k, which is �3920. If you again paid the company �6k, this time �2080 would come off the capital sum (6000-3920), so the outsyanding balance is now only �95920.
In the third year, the interest payment would be 4% of �95920, or �3837. So you again paid �6k, the capital has now reduced to �93757.
The common thread here is that every year, the amount of decrease in the capital sum escalates - �2k in the first year, �2080 in the 2nd year, �2163 in the 3rd year.
I haven't a clue what you are trying to prove with the 6% figures. Just remember that the more you can afford to pay off the capital sum, the quicker it decreases.
I think the advice you'll have been given is that when interest rates are low your monthly repayments go down so you'll have more cash spare which you can use for paying off some capital.
I agree with buildersmate and can't see a link between the 4% interest rate and your figure of 96% of capital- I don't know what that 965 figure represents and where it comes from
I agree with buildersmate and can't see a link between the 4% interest rate and your figure of 96% of capital- I don't know what that 965 figure represents and where it comes from
100% minus 4% would of course be 96% ... provided all percentage figures relate to the same thing. But i don't think they do, and I certanly don't understand how you can think that by paying interest at 4% you would have paid 96% of the capital- over a year you'd actually have paid off much less than 45 of the capital as most of your payments would be to cover interest.
Perhaps we need to start at the begininning. It would help if you tell us what your mortgage is, what your repayments are at 4% and what overpayments you are making.
Perhaps we need to start at the begininning. It would help if you tell us what your mortgage is, what your repayments are at 4% and what overpayments you are making.
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