Mortgage Overpayment Calculation

[RedOnion]

I'm guessing mortgage is with EBS?

 

[gnf_ireland]

I ran your numbers through the calculator as well
Regular monthly over payments of 100 euro would mean an interest saving of 23,990 and mortgage paid off 3 years 4 months earlier
Lump sum annual over payments of 1200 euro would mean an interest saving of 23,149 and mortgage paid off 3 years 3 months earlier

Are these calculations the same if I choose the reduce the future monthly repayments, as opposed to reducing the term?

If you decide you wish to continue paying 1484 each and every month until the mortgage has been cleared, it makes no difference if it comes off the future repayment amount or the term - the end date will be the same as you are paying the same amount off until the mortgage is zero. The calculations are based on this assumption.


If you choose to reduce the term, your monthly mortgage repayment remains the same and you simply finish paying the mortgage earlier - so something like 1384 a month at the moment. If you pay 1484 a month from now until the end of the mortgage, it will finish 3 years 4 months earlier. If you pay 1484 a month for 12 months and then stop, you will have overpaid by 1200 euro so likely to clear your mortgage repayments around 1.5 months earlier !

If you choose to reduce the future repayment amount, your mortgage will not finish earlier. It will finish in 30 years, but you will could end up paying less each month for periods of this. So lets say you decided to over pay by 100 euro for 12 months and then went back to regular payments, you would have 29 years left on the mortgage and would be paying roughly 1378 a month on it. If you done it for 5 years, monthly repayments would be around 1,351 euro and 10 years it would be around 1300 euro a month.
I know that does not sound like much of a monthly saving, but after 10 years you would have paid in 12,000 extra (100 euro * 12 months * 10 years) and will have save 20160 (84 euro (reduced payment)* 12 months * 20 years) *goes not factor in the time value of money*
The longer you do the over payments, the better the benefits obviously - 15 years would be 1215/month, 20 years around 1040/month and 25 years down to around 513 a month.


*Note* everything above assumes interest rates don't change etc and are based on using an online mortgage over payment calculator !

 

[gnf_ireland]

Regarding any overpayments I make to the mortgage account, I need to instruct the bank what to do with them or else they will just sit there idly. I can either (a) send them one letter instructing them that my regular set repayment amount is to be applied to reduce the term every month or (b) send an individual letter whenever I want some/all of the overpayment to be applied to reduce future repayments. In both scenarios, the bank will not notify me of the overpayment until it has been applied to my mortgage according to whichever option (term or future repayments) I choose. It appears to be an unnecessarily cumbersome system but, as you and others have said, it will be worth it in the long-run.

Crazy notion here - so what happens if you do nothing? Lets say you have 308,000 euro and you make a once off overpayment of 10,000 euro. You don't send them any instruction? What happens ?

Do you continue to pay interest on 308,000 euro or on 298,000 euro? I would hope it would be the latter, but might be worth confirming it

If you have sent them no instruction and the money is just sitting idly there, is there any way to get it refunded to you in the future ? Like a redraw option ? If the money has neither been allocated against the term or the repayment amount, there may be a means of getting it back. This is a very beneficial offer if you can avail of it as it effectively allows you to save at your mortgage rate (assuming its not included in your interest calculations)


But yes, it does appear that it is unnecessarily cumbersome. Worst case, and the redraw is not possible, you should send them a letter stating all overpayments should be treated in x manner until further written notice.

 

[puppy]

It is reasonably easy to set up a spreadsheet to model this. I used the CUMINT and CUMPRINC excel functions. The way that excel calculates these is the same as KBC for one.