Mortgage Rate Rises

Semple said:
Have you stuck your numbers in a overpayment calculator to see what your interest would be reduced to after overpayment?

From our last two months the interest was about 415 a month. If we didn't add our overpayment in the interest would be 455. I'm not seeing any mistakes with the numbers.
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See the above post.
 
413x said:
Our interst falls by 2 pounds (ish) a month on our 900 ppm normal.

The interest is about 330ppm
And the capital repayment is 570ppm

If we paid an extra 500 a month the interest wouldn't drop to 290ppm!

Details added
200k balance
1.93 rate.

Paying off an extra 500 would mean balance next month would be 199000 vs 199500

Interest on 199000 vs 199500 is a couple of pounds at most.
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Agree with you on this, he's worked something out wrong there surely. My interest goes down 1-2 pounds per month as well. Overpaying £500 for me, would maybe make it 2-3 pounds each month. EDIT: I mean the interest CHARGED.
 
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Mercenary Keyboard Warrior said:
Yep if your after tax rate on savings is higher than your mortgage interest rate you save and then pay off the mortgage when that situation reverses.
(Or hold out if you think savings will overtake mortgages again quickly).

As said with the proviso of its probably better to not have more than one years overpayment allowance saved, unless there is a massive rate discrepancy.


Typically the ERC is linked to the length of the fix, in both rate and when it applies. Usually (but not always) declining as the fix plays out.
Generally there is an ERC payment up until the end of the fix, but short and the end of long term fixes tend to be pretty low.

My 10 year fix was 5% ERC Years 0-6, 4% year 7, 3% year 8, 2% year 9, and 1% during final year of fix.
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I was looking at "lifetime discounted", without realizing that is a variable rate, the penalty is less for them, but yes, otherwise the penalty is for the entire duration of the fix.

My core point still stands, if you want to predict interest rates then open a trading account, if you want to buy a house work out your budget etc.
 
Semple said:
Have you stuck your numbers in a overpayment calculator to see what your interest would be reduced to after overpayment?

From our last two months the interest was about 415 a month. If we didn't add our overpayment in the interest would be 455. I'm not seeing any mistakes with the numbers.

Edit: Ah actually I see how you're working it out wrong. Your previous balance without overpayment wouldn't be 199500 it would be more. You're not taking into account a regular overpayment which would be reducing the total balance each month by capital and interest - it's not a fixed amount each month because of the interest savings that are compounded.

Example if we ignore the interest element and focus just on capital repayment. At end of the year a £500 repayment without overpayment would be 200,000 - (500 *12) = 194,000. With 500 overpayment at the end of year 1 the balance would be 188,000.

Interest is calculated daily so the interest due on the 188,000 is now less than the 194,000. This gap just gets bigger over time.
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No it would be 199500.
Because 900ppm 330 is accrued on balance (1.93 percent is the annual rates) and 570 is thus capital.

So that balance hits about 199500
If you over paid 500.
That would hit 199000

Interst is the calced and added on that 199000

Which is a tiny amount of difference.


Also, the interest rate at (let's say 2pc) on 188 vs 194 is tiny. It's like 10 pounds a month
 
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413x said:
No it would be 199500.
Because 900ppm 330 is accrued on balance (1.93 percent is the annual rates) and 570 is thus capital.

So that balance hits about 199500
If you over paid 500.
That would hit 199000

Interst is the calced and added on that 199000

Which is a tiny amount of difference.
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Yes, so carry on and work out what that would be by EOY 3. The difference at the start of term will be less because the starting balance will be the same. But overtime the starting balance each month is reduced further than that over not overpaying.
 
Semple said:
Most people aren't in that position anymore though, they're coming out of a low rate mortgage when savings over the last 4-5 years have only been like 1-2%.

Looking at my own numbers, we're overpaying our mortgage by 500 a month which over the last 6 months has an average monthly interest saving of £41.78, which works out roughly £500 a year. If I diverted that to a regular saver for example at 4.8% at end of year 1 that would only net me about £155.

For year 2 (as the interest reduces) I'd probably be at around £950 in savings. Whereas the regular saver would now be at £605.

It's only year 3 where savings start to overtake, but for me my fixed term will have ended by then.
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Semple said:
Yes, so carry on and work out what that would be by EOY 3. The difference at the start of term will be less because the starting balance will be the same. But overtime the starting balance each month is reduced further than that over not overpaying.
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Yes. But you were saying you're saving 41 a month but I think what you're saying is you're saving 41 a month after a number of years?

In the first example. You were Comparing "at the end of year 1 I'd only net 155" on savings

So it's not like for like

So at the end of year 3 you'd be earning much more than 155 a year too if you had an annual 4.8pc rate.

You're not going to be saving 41 a month on the first year of overpaying 500ppm
 
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Scam said:
It’s definitely not as simple as X% rate being more than Y% rate.
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It basically is...

If you've got a savings account paying X% and a mortgage with a rate of Y% and X > Y then why overpay?

In the general case it's better not to, an exception could be when an overpayment impacts the LTV to the point where you're into a lower rate for the entire mortgage... then it's not just the interest rate of the overpayment you're comparing but also the additional saving on the rest of the mortgage vs the gain from savings... though until you can get to that point the overpayments are better off in your savings and after you've made the overpayment and passed that point the future ones are too.
 
413x said:
I calculate this differently.
Online tools used

I've used a simple

A)
200k debt
2pc rate
Over 3 years


B)
Same as above
200ppm overpay


C)
200ppm saving
4pc rate
Over 3 years

A) balance =174,850
B) balance =167,440
C) balance = 174,850 - 7,653 = 167,197

You can see over time the saving rate, if better, is the way to go
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Yeah I get the same. Just did it all in a spreadsheet. However, keeping everything the same and checking balances at 24 months not 36 and it's less of a difference. I make it only £112 better off if you did savings, vs £247 at the 24 month point.
I'm not sure why in my case over 2 years it is working out better to pay monthly all be it by a tiny amount. Off to check my calcs.
 
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413x said:
I think your spreadsheet is wrong.
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OK I see what I did. It's not wrong, I just accidentally included month 36 as first month when I should have done month 37 - 60 to make it exactly 24 month comparison.
When I do that, yes saving at 5% beats monthly payments of £300 at 1.89% over 24 months by about £250.

EDIT: So can I be bothered to take out a savings account to save £250 over 2 years. Hmm. Yeah I probably will.
 
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Thinking about the rate change from my 2.21% 192k 5 years ago...

If I were to apply for the same mortgage when it comes to an end and the rates are 6.63%, would this mean my monthly interest rates go from £353/month to £1059/month? That's crippling as my monthly payments were (are currently) £834. So paying £1059 a month only clears the interest and doesnt pay anything of the house off at all!?

At 5.59% they're 2.53x higher, but thankfully it'll be down to 100k at that rate (IF the bank accept my DIP)

£5590/year ... £465/month in interest.

What I dont understand is the 'cost of deal' is £22,725.21 for the 5 year fixed at 5.59% on 100k. But 100k + 5.59% is £5,590 (x5) £27,950. Isnt the cost of deal £27,950?
 
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jaybee said:
OK I see what I did. It's not wrong, I just accidentally included month 36 as first month when I should have done month 37 - 60 to make it exactly 24 month comparison.
When I do that, yes saving at 5% beats monthly payments of £300 at 1.89% over 24 months by about £250.

EDIT: So can I be bothered to take out a savings account to save £250 over 2 years. Hmm. Yeah I probably will.
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Easily done.
At end of the day it's which ever rate is better gets you most savings.

I pay 700ppm into my regular savers vs mortgage due to this
 
Guest2 said:
Thinking about the rate change from my 2.21% 192k 5 years ago...

If I were to apply for the same mortgage when it comes to an end and the rates are 6.63%, would this mean my monthly interest rates go from £353/month to £1059/month? That's crippling as my monthly payments were (are currently) £834. So paying £1059 a month only clears the interest and doesnt pay anything of the house off at all!?

At 5.59% they're 2.53x higher, but thankfully it'll be down to 100k at that rate (IF the bank accept my DIP)

£5590/year ... £465/month in interest.

What I dont understand is the 'cost of deal' is £22,725.21 for the 5 year fixed at 5.59% on 100k. But 100k + 5.59% is £5,590 (x5) £27,950. Isnt the cost of deal £27,950?
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Each year's capital repayment makes the 5.59% a lesser amount of £
 
413x said:
Yes. But you were saying you're saving 41 a month but I think what you're saying is you're saving 41 a month after a number of years?

In the first example. You were Comparing "at the end of year 1 I'd only net 155" on savings

So it's not like for like

So at the end of year 3 you'd be earning much more than 155 a year too if you had an annual 4.8pc rate.

You're not going to be saving 41 a month on the first year of overpaying 500ppm
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Yes I'm coming to the end of year 3, but that was the point I was making in my first sentence to the other poster is that you can't compare the 1000 overpayment on a sub 1.5% mortgage rate with a 5% savings rate as those didn't exist at the time.

Just whacked some numbers in a spreadsheet, so starting balance is 200k, regular payment of £1288 versus overpayment of £500. Current rates of mortgage at 6% versus a regular saver at 5% (putting 500 a month in).

EOY1, the regular payment would have a final balance of 191,105. The overpayment would have a balance of 190,272. Giving interest savings of 167. In a regular saver that would have yielded 161 in interest.

EOY2, the regular payment would have a final balance of 192,660. The overpayment would have a balance of 179,944. Giving interest savings of 716. In a regular saver that would have yielded 631 in interest.

EOY3, the regular payment would have a final balance of 188,647. The overpayment would have a balance of 168,979. Giving interest savings of 1668. In a regular saver that would have yielded 1423 in interest.

EOY4, the regular payment would have a final balance of 184,387. The overpayment would have a balance of 157,338. Giving interest savings of 3048. In a regular saver that would have yielded 2556 in interest.

EOY5, the regular payment would have a final balance of 179,864. The overpayment would have a balance of 144,979. Giving interest savings of 4885. In a regular saver that would have yielded 4045 in interest.

For year 5 the monthly interest savings are averaging 153 a month. People always underestimate the effect of compounding interest.
 
BBC reporting mortgages will cost around an extra £500 per month by the end of 2026


If that's true then I would expect if it's to come down from then it would be slowly?

They really do like shafting people and stringing things out don't they
 
Semple said:
Yes I'm coming to the end of year 3, but that was the point I was making in my first sentence to the other poster is that you can't compare the 1000 overpayment on a sub 1.5% mortgage rate with a 5% savings rate as those didn't exist at the time.

Just whacked some numbers in a spreadsheet, so starting balance is 200k, regular payment of £1288 versus overpayment of £500. Current rates of mortgage at 6% versus a regular saver at 5% (putting 500 a month in).

EOY1, the regular payment would have a final balance of 191,105. The overpayment would have a balance of 190,272. Giving interest savings of 167. In a regular saver that would have yielded 161 in interest.

EOY2, the regular payment would have a final balance of 192,660. The overpayment would have a balance of 179,944. Giving interest savings of 716. In a regular saver that would have yielded 631 in interest.

EOY3, the regular payment would have a final balance of 188,647. The overpayment would have a balance of 168,979. Giving interest savings of 1668. In a regular saver that would have yielded 1423 in interest.

EOY4, the regular payment would have a final balance of 184,387. The overpayment would have a balance of 157,338. Giving interest savings of 3048. In a regular saver that would have yielded 2556 in interest.

EOY5, the regular payment would have a final balance of 179,864. The overpayment would have a balance of 144,979. Giving interest savings of 4885. In a regular saver that would have yielded 4045 in interest.

For year 5 the monthly interest savings are averaging 153 a month. People always underestimate the effect of compounding interest.
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So are we saying the same thing?
Put it in the highest interst account?

Because if your mortgage rate is 6, and savings is 5. Obviously you'd over pay the mortgage at that time.

But soon as savings rates are above your mortgage rate it's time to Divert that overpay to the savings account.

Real world case:
(not predicting the future)
-You have a mortgage at 4pc for 5 years

-You savings were 2pc. So you overpaid the mortgage

-Bank rate goes up

-Flexible saver comes out at 5pc fixed for a year

-At this point (to max profit) you'd switch to the saver and stop over paying the mortgage.
 
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