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Treacodactyl
Downsizer Moderator

Joined: 28 Oct 2004
Posts: 25795
Location: Jumping on the bandwagon of opportunism

Posted: Fri Oct 28, 05 12:11 pm Post subject: 72

Something that I found interesting is an easy way of working out how long it takes to double a pot of money if the interest is compounded. You simple divide 72 by the interest rate and get the answer in years. So, if you have ï¿½1000 in an ISA paying 5% it will double to ï¿½2000 in 72/5 = 12.4 years.

It's more useful to show how interest only mortgages mount up. Assuming an interest rate of 6% then ï¿½100k would double to ï¿½200k in just 12 years. Taking some of the high interest rates on a credit card of say 29.9% then a debt would double in 2.4 years.

wellington womble

Joined: 08 Nov 2004
Posts: 15051
Location: East Midlands

Posted: Fri Oct 28, 05 9:59 pm Post subject:

maths is not my strongest point (although I understand what your saying after i read it the third time) can you adapt it to work out how much interest will reduce by? ie my mortgage payment - I can work out how long it will take to pay off the debt, but the interest will reduce each time we pay off some of the deficit, and more of the same payment will go towards the actual debt, and reduce the time taken to pay off the whole - how can I work out how long it will take to pay off the whole thing?

If two trains pass one another at different speeds......................

Pilsbury

Joined: 13 Dec 2004
Posts: 5645
Location: East london/Essex

Posted: Fri Oct 28, 05 10:27 pm Post subject:

the easiest way i know to work out how much you save in intrest if you make reguar overpayments is call the morgage lender.....
I know it is cheating but compound intrest calculations are way beyond my maths ability and the answers are really quite reveling.
take my morgage for example, I am in the lucky position of being able to put ï¿½150 a month in a savings account which pays a pitance in intrest, I asked my lender what would happen if i paid it off my morgage and was told it would reduce the time taken from 25 years to 13 years and 9 months saving over ï¿½25,000 in intrest.
Guess where my savings go now.

gil
Downsizer Moderator

Joined: 08 Jun 2005
Posts: 18415

Posted: Sat Oct 29, 05 12:40 am Post subject:
absolutely. apparently an overpayment of even ï¿½50 a month can make a significant difference.

wellington womble

Joined: 08 Nov 2004
Posts: 15051
Location: East Midlands

Posted: Sat Oct 29, 05 9:38 am Post subject:
blimey - we were thinking of putting in about ï¿½600 a month - it'll be paid off a week next tuesday! I'll ring the mortgage people (that'll put a damper on their day - tee hee!)

dougal

Joined: 15 Jan 2005
Posts: 7184
Location: South Kent

Posted: Sat Oct 29, 05 12:02 pm Post subject:

It depends greatly on the detail of the mortgage.

'Someone I Used to Know' had a mortgage which permitted overpayments, but didn't actually recalculate the sum on which interest was being charged until New Year. Thus she would have been better off putting her overpayment money into a deposit account until Christmas, then making one overpayment. She'd have gained a year's interest on the money...

Different mortgages have different rules. You need to check.

WW - I think it sounds like your circumstances may have changed and maybe you should be looking to change your mortgage.
So-called "offset mortgages" are rather attractive if you have an expectation of surplus funds in future. The idea is that you have a deposit account alongside the mortgage, and you pay interest only on the difference. The result is that your deposit funds are effectively earning interest at whatever your mortgage rate might be (the deposit interest is effectively 'tax free' too). The loan interest is usually calculated daily - no waiting for New Year to benefit. And of course, in case of emergency, you can dip into your deposit funds without needing the bank manager's permission...

marigold

Joined: 02 Sep 2005
Posts: 12458
Location: West Sussex

Posted: Sat Oct 29, 05 2:19 pm Post subject:

Really useful bit of information Treacodactyl, thanks. I'm a sums-moron

, so hints like this are really useful.

I've had an offset mortgage with Intelligent Finance for several years and have been really pleased with it. It's very flexible and my current account with them is also offsetting the mortgage interest. Every little helps

. If you take out a further advance for an extension or whatever, as you can put the lump sum in the deposit account and let it offset as you gradually use it up for the building work.

It's very easy to manage online and I'd be staying with them when I move, only they don't do self-certified mortgages and that's what I need.

wellington womble

Joined: 08 Nov 2004
Posts: 15051
Location: East Midlands

Posted: Sat Oct 29, 05 11:17 pm Post subject:

I'll definitley check the small print before we pay anymore cash in then! Thanks Dougal!

We're actually locked into the mortgage for another year or so, but have a chunk of capital to dispose off, and getting rid of the mortgage is our primary aim anyway, as we will be effectively reducing the debt with the capital, the amount we put in per month will stay the same, but cover more than just the interest, which it has up to now, effectively overpaying it I hope (smallprint permitting!)

High Green Farm

Joined: 30 Nov 2004
Posts: 349
Location: Mid-Suffolk

Posted: Sun Oct 30, 05 10:07 am Post subject:

marigold wrote:

I've had an offset mortgage with Intelligent Finance for several years and have been really pleased with it. It's very flexible and my current account with them is also offsetting the mortgage interest. Every little helps

We've just moved from IF to Abbey to a lifetime base rate tracker (base rate plus 0.5%, so a saving of 0.7% on IF variable rate), and you get a savings pot to offset with. It doesn't do the current account offset, but that simply wasn't saving me 0.7% per annum!

marigold

Joined: 02 Sep 2005
Posts: 12458
Location: West Sussex

Posted: Sun Oct 30, 05 10:44 am Post subject:

High Green Farm wrote:

marigold wrote:

Sounds good! The important thing is to do the research. My mortgage is so small that interest rate is less important to me than flexibility and it would have been a lot less hassle to stay with the same lender than to sort out a new lender on top of moving. My circumstances are a rather non-standard, so I'm using a broker this time round.

Helen_A

Joined: 26 Jan 2005
Posts: 1548
Location: MK, Bucks.

Posted: Tue Nov 01, 05 12:12 pm Post subject:

We've recently been looking into mortgages...

most of those that allow overpayments only allow you to overpay up to ï¿½500 *in each 30 day period*... and we found several that also capped the amount per annum as well so that any overpayment above ï¿½3000 per annum would attract a charge on the whole overpayment not just on that over the sum 'allowed'

The only exception was the Nationwide - who allow you to overpay by up to ï¿½500 each and every month of the mortgage; but only if you have their 'flexible' mortgage which was a bit more expensive anyway

Helen_A

(who is mardy today as it looks like our house sale has fallen through *again*...)

gil
Downsizer Moderator

Joined: 08 Jun 2005
Posts: 18415

Posted: Tue Nov 01, 05 12:29 pm Post subject:

There's a difference between
a) (regular) monthly overpayments (amounts capped)
and
b) paying lump sums off the capital (usually a minimum).

a), as remarked earlier in this thead, can leave you stuffed in various ways :
1. when the interest rate changes, your overpayments get absorbed into the recalculation of monthly repayments, so that you don't get full benefit unless you insist in carrying on paying more each month: I overpaid on a previous mortgage, then interest rates went up, but my repayments remained constant. But this just cushioned me against the interest rises - it did not shorten the term of the mortgage, nor did it reduce the outstanding capital.
2. when you overpay monthly, but the amount only gets set against your debt at the end of the year. So find out when that is, and save your overpayments into a high interest-paying account in the meantime.

On that basis, you might as well save up and make a lump-sum capital repayment if your lender will let you.

But remember to keep a little bit of your mortgage outstanding till the end of the term, because that way, the lender keeps the title deeds and you don't have to pay to keep them in a safe place.

also check out lenders' charges for early redemption of mortgage.

the b******s want to get you every way.

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