i Finance Central

A lot of people don’t realise but the standard 25 year mortgage term isn’t fixed. It’s not set in stone. If you won the lottery would you keep the mortgage for the full 25 years? I very much doubt it.

If you had a monthly payment of about 500 you could decide to pay 540 instead every month. What do you think would happen if you did this for 25 years?

We’ll use a 100,000 mortgage as a test. We have a 25 year term and a 5% interest rate. We pay about 580 per month and end up paying a staggering 175,000 back in total.

Now, using the same figures we would pay just 20 per month extra to make a rounded 600 a month. Our new total payback would fall to just under 170,000 we save an extra 5 thousand. And we shave a year and a half off the 25 years.

OK, 5 grand doesn’t sound a great deal but using a mortgage overpayment calculator to put in different figures allows us to see what we could save in terms of money and time if we could afford a little extra.

Here’s another example where we pay 50 a month extra.

If we use the same example of 5% interest on a 100,000 mortgage and overpayed 50 every month we could knock just under 4 years off and save over 12 grand.

The power of using a mortgage overpayment calculator can show you at the ouset just how better off you could be. It allows you to plan ahead for your future, not the lenders!

Another example using bigger payments than we’ve used so far.

Same figures, 100,000 mortgage, 5% interest, 25 years but paying an extra 100 per month. Nowe were talking. 21,000 saved and over 6 years off the term. Serious savings later by paying a bit extra now.

You might be thinking that it’s hard to pay an extra 100 a month and it doesn’t really make a difference as you will have paid an extra 23 thousand just in the 100 per month overpayments.

Think about this though, for the remaing 6 years after your mortgage is clear you don’t have to pay 680 every month. Think about how much this means to your pocket.

Have a play with a mortgage overpayment calculator and see what you could save, you may be staggered at the savings you could make.

This entry was posted on Tuesday, March 31st, 2009 at 8:39 am and is filed under money. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.