Over Paying An Interest Only Morgage

[cassa333]

Hi,

I have an interest only mortgage that after all these years just found out I could have overpaid and got the amount down.

So my question is probably not complicated for someone who knows these things but is devilishly impossible for me to work out.

If anyone can work out at what rate or whatever the interest goes down would be very helpful. The interest rate is base rate plus 1.5% I think.


Morgage £86,000
Interest £151.64 per month
Term left 107 months.

I have made a £25,000 payment and upped the monthly payments to a total of £301.64 a month. (An over payment of £150 a month.) (£16,000 overpayment over 107months)

I may at some point make another bulk overpayment and/or up the monthly payments but that will wait to see how this goes.

However when I made the payment and upped the monthly payment the woman said did I want the amount paid to stay the same because as the loan amount went down the interest would also go down. I said carry on paying the full amount.

Having paid a lump sum I realise the interest is going to be slightly lower but not actually sure by how much.

At last my question…

How much extra will I be paying off the loan as the interest drops?

It’s probably only a few pounds a year but I’m trying to work out how much I will need as a lump sum at the end of the 107 months.

My simple brain says 86,000 - 25,000 - 16,000 = 45,000

But that doesn’t take the lower interest as it progresses.

Thank you

[bobbinwales]

Ask them.

[satprof]

Hi Cassa,

I've worked this out based on an interest rate of 0.1763256% per month or 2.1159072% per year. Mathematicians have fancy ways to calculate these figures, but I just use a spreadsheet with around 108 rows to simulate each of the future 107 months.

This shows that you'll only owe about £38400 at the end of 107 months. (This assumes a certain way of calculating the monthly interest & may be slightly different for different companies.) As you see, that small extra payment makes quite a difference.

It can be very handy to get someone with a little spreadsheet expertise to set up something like this and teach you how to use it. You can then see for yourself the effect of additional fixed or regular payments.

[beso]

The calculation is complex because the interest is compounded. Paying off faster reduces the principle so each payment is slightly more off the principle than the one before.

The calculation is complicated and involves exponential components.

Most banks have online calculators that show a graph of the progress you will make towards paying off your loan with different repayments. Just Google mortgage calculator.

[twix123]

Unfortunately no one can give you a definite answer, as Base Rate will certainly fluctuate over the next 9 years, causing the actual interest charged to change accordingly.

[cassa333]

Thank you for your replies.

Sorry it took me so long to reply. TBH I had forgotten I asked it lol

I have a better idea of what I need to save now so again thank you.