Thank you Brendan, so I seem to be making a logical error by including the reduction of principal payments as gains too.
It's also not natural to grok as these loans are amortizing via the amortizing schedule.
In your example:
The difference in overpaying is 84euro correct? So 84 euro divided by 3000 is only 2.8% 'return' so again does not fit the simplistic model of return == your loan interest.
This does make me wonder if this 'return' changes depending on the years remaining on your mortgage or it does not matter?
From what I read most mortgages are primarily interest payments in the first 2/3rds of its life, then it balances out and after that it is majority principal being paid down.
In that case is it not correct to say that you will have greater 'returns' in paying down your mortgage in the first 0-65% of its duration rather than the final 35%? With the earlier being the better.
If so, is there some simple calculation or rule of thumb to adjust your interest rate / expected return from overpayments vs other options such as AVCs, stock market etc?
After writing this I see SPC100's thread linked where folks are saying it is just simply the interest rate being saved / returned. Ok very interesting thank you all for the help, I will need to sit down and run the numbers to understand it more clearly.
Edit: Indeed thanks for the discussion on it being the best investment then why not continue to overpay? In my personal case I want to use 1/3 of my savings on the mortgage overpayments, a 1/3 on stocks/ITs and 1/3 into my pension. I was just confused/surprised to see the 'return' being higher than expected but now I see this was in error.
It's also not natural to grok as these loans are amortizing via the amortizing schedule.
In your example:
The difference in overpaying is 84euro correct? So 84 euro divided by 3000 is only 2.8% 'return' so again does not fit the simplistic model of return == your loan interest.
This does make me wonder if this 'return' changes depending on the years remaining on your mortgage or it does not matter?
From what I read most mortgages are primarily interest payments in the first 2/3rds of its life, then it balances out and after that it is majority principal being paid down.
In that case is it not correct to say that you will have greater 'returns' in paying down your mortgage in the first 0-65% of its duration rather than the final 35%? With the earlier being the better.
If so, is there some simple calculation or rule of thumb to adjust your interest rate / expected return from overpayments vs other options such as AVCs, stock market etc?
After writing this I see SPC100's thread linked where folks are saying it is just simply the interest rate being saved / returned. Ok very interesting thank you all for the help, I will need to sit down and run the numbers to understand it more clearly.
Edit: Indeed thanks for the discussion on it being the best investment then why not continue to overpay? In my personal case I want to use 1/3 of my savings on the mortgage overpayments, a 1/3 on stocks/ITs and 1/3 into my pension. I was just confused/surprised to see the 'return' being higher than expected but now I see this was in error.
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