partial redemption to reduce term of mortgage

C

catley

Guest
Today I obtained the following information from my lender--150e reduces my mortgage by 1 month, 200e reduces it by 1 month, 500e by 2months, 1000e--5months,1500e--7months, 2000e--10 months--that's today's figures--why would I pay a larger sum to get less of a reduction???Has anyone else discovered this??
 
Thanks for the tip--have already done so, but I remain confused as to why smaller amounts get more of a reduction?--this will have huge consequences for those wishing to use some or all of their SSIA money to reduce the term of their mortgage!!
I keep getting the runaround form my mortgage provider--lots of paperwork-but no explanations as to how the reductions in term are calculated.
150e yesterday reduced my mortgage by 1 month, if I had lodged 1500e-I would expect to get 10 months off, but no, I would only get 7 months off,can anyone explain this to me??
 
if what you are saying is true, then it would be madness to go in to your mortgage lender with 1000 euros to make a partial redemption.
if i desided to make a downpayment tomorrow of 150 euros and that gets me a month off, what is to stop me going in the next day with another 150 and get another month off?
 
my mortgage was 25,000, taken out in june 2004, over 10years, current rate of interest 4.25%,repayment 244.75p.m.I have made several partial redemptions over the last 2 years --and have been told by my lender that as the amount i owe decreases (i.e.less interest, more capital being repaid)then, the more it takes to reduce the term, this makes sense, except that a payment of 800e in july 2004 reduced the term by 4 months,and today 800e still reduces it by 4 months, even though now I owe 9,600e less!!!!
 
You have paid an extra €9600, but you've also used up a term of two years and 3 months of interest savings.
If you had paid the €800 in July 2004 it would have saved you far more than if you pay it now. (In the same way that paying it now will save you far more than paying it in two years time!)

As suggested above, try the mortgage calculator to test the effect of accelerated payments.
Looking on the Jeacle calc you'll be able to see how the later you make partial redemptions the less the overall saving hence the less the reduction in term.

irish566 said:
if i desided to make a downpayment tomorrow of 150 euros and that gets me a month off, what is to stop me going in the next day with another 150 and get another month off?
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Nothing is stopping you from going in the next day and paying an extra €150 off.... but it won't have the same effect and get you a month off each time. They don't pluck random terms and figures from the air. Paying a certain amount at a certain time will have a certain effect on your mortgage! This can clearly be illustrated with the aid of a calculator such as the one linked above. You've signed up for a term and a rate, plugging these into the calc will allow you to have the same information (well, very close too) as the bank staff in calculating the reduction in term.
 
hi satanta
you have just made my point --when i paid 800e in june 2004 i got 4 months off, yet lodging 800e last week would have gotten me 4 months off!!
yet 150e on the same day last week got me 1 month off--beware folks--smaller amounts seem to get a bigger reward
 
catley said:
hi satanta
you have just made my point --when i paid 800e in june 2004 i got 4 months off, yet lodging 800e last week would have gotten me 4 months off!!
yet 150e on the same day last week got me 1 month off--beware folks--smaller amounts seem to get a bigger reward
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I havn't made your point, in fact, you've totally missed my point!

800e in June 2004 saved you four months off your mortgage. This was based on the remaining time of your mortgage (the term), the capital (how much) and your interest rate.
If you pay the 800e off last week, your paying it off a smaller capital, over a shorter term... so the potential savings will be smaller!

(Try looking at one of the calculators, if you make payments off a 30 year mortgage the savings will be huge compared to making the same payments off a 20 year mortgage as you'd be saving on an extra 10 years of interest on the amounts paid)

No matter what the amount, you can calculate what the reward will be! When you pay a certain amount off, you've less capital left and therfore less potential savings can be made. So technically, yes, the less you pay the greater the reward will be.... but only as the amount you will be making the next saving on will be less!
 
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