Mortgage Rate Rises

jaybee said:
It says I would be better off saving, but that's over the entire 27 years left not the fixed period.


I'm concerned I'm working this out wrong now. Is it possible you've underestimated the power of compound interest though for people with high outstanding balances?
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Compound interest works on both your savings and your mortgage interest though.
 
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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You can't be saving 40 pounds a month in interest on the 500 of overpayment
 
They should really teach setting up a mortgage, interest rates, compount interest, inflation, paying bills and other essentials of life in school... Instead of learning about Pythagoras theorem, Tudors, Mayans and Aztecs!

Its suprising how much you just have to pick up on the way in your 20s and 30s with no help from school. At least I remember a French song about icescreams from about year 7 to remember colours?!?!?

I think if you asked the general public about paying an electric bill, what their rates were and steps to know about how much a mortgage costs in interest a month 70% wouldnt have a clue.
 
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Guest2 said:
They should really teach setting up a mortgage, interest rates, compount interest, inflation, paying bills and other essentials of life in school... Instead of learning about Pythagoras theorem, Tudors, mayans and Aztecs!

Its suprising how much you just have to pick up on the way in your 20s and 30s with no help from school. At least I remember a French song about icescreams from about year 7 to remember colours?!?!?
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Said this for years.

Even physics,English lit. This isn't necessary to gcse.
Absolutely everyone needs personal finance. I like to think the forum is a higher than average in finance than the general population. But you can see the confusion.
 
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Let me show you a mathematical example for my situation:

Save £300 per month for the next 24 months and at the end I have £7587.26 which is £387.26 in interest.

I then pay the £7587 amount off on month 60 out of 60 of my 5 year fix and it brings the balance down from £324,989 on month 35, to £297,221 wiping £27,768 off the balance.

Instead, if I had paid £300 off per month from month 36 to 60, the balance at the end is £297,164 wiping £27,825 off the balance. The monthly method means I wipe an extra £57 off the balance.
 
jaybee said:
I think you are over simplifying? When you pay off that £38,731 at the end of the 3 years it won't have the same effect because of the compound interest calculating monthly on mortgages. So the sooner you get the payments paid off it starts to take effect more quickly.
I've just worked mine out using my spreadsheet I made ages ago. I'm 3 years into a 5 year fix at 1.89%. Current outstanding balance is obscene... well over 300k. 27 years left.
If I right now stop over paying £300 per month, and instead put it into a 5% saver for the final 24 months of this term, then pay that off at the end, I would be worse off by £681.
The final outstanding balance in 2 years time is lower by paying £300 off each month even with rates at 5%.
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Christ, that makes me feel better about my balance of £39k..
 
413x said:
Said this for years.

Even physics,English lit. This isn't necessary to gcse.
Absolutely everyone needs personal finance. I like to think the forum is a higher than average in finance than the general population. But you can see the confusion.
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100% Some things I learned in school seem totally irrelevant to anything.
I didnt know how much my mortgage was costing in interest to me until I started paying it! Then I learned fast :D
 
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Semple said:
I'd say give or take 10% but yep thereabouts. What are you expecting?
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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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IvanDobskey said:
I seriously don't see labour doing any better. I don't trust any party currently.

Unless Corbyns mythical money tree orchard is discovered of course :p
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There really is nothing Labour can realistically do about it. This is the result of 15+ years of poor monetary policy that resulted in asset prices to skyrocket and now the day of reckoning has come and will only get worse as more and more people will come off their fixed rates.
 
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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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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On 38k mortgage as a first time buyer at 4.49% £303 per month 5 year fixed 13! 14 years, started in February

Paid 10% overpayments already and plan to do it every year to get overall down asap.
 
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jaybee said:
Let me show you a mathematical example for my situation:

Save £300 per month for the next 24 months and at the end I have £7587.26 which is £387.26 in interest.

I then pay the £7587 amount off on month 60 out of 60 of my 5 year fix and it brings the balance down from £324,989 on month 35, to £297,221 wiping £27,768 off the balance.

Instead, if I had paid £300 off per month from month 36 to 60, the balance at the end is £297,164 wiping £27,825 off the balance. The monthly method means I wipe an extra £57 off the balance.
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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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