When You Should Switch Your Mortgage Early

Can also recommend the spreadsheet from Chris Gamlin, especially if you want to know the positive impact of making small overpayments per month on the overall cost of your mortgage.  My current mortgage allows me to overpay per month up to 20% of the normal monthly payment, which for me is about an additional £400 that I can pay without any charges or penalties. The long-term effects of doing this (even at £50 per month overpayment) are significant. If I overpay £400 per month (assuming I see the mortgage right through its 25-year term) my mortgage will be paid off 9 years early and I'd have saved myself £130,000 in interest payments. Lesson therefore is, when you arrange a mortgage, don't just accept that it will be for 25 years at £x per month. If you have spare money "invest" into your property by clearing your mortgage as fast as possible. As I said, even £50 per month more (perhaps that gym membership you never use) can cut your mortgage by a few years and save thousands in interest payments.  Of course for many of us we are not in mortgages that we will see through 25 years because we might move houses a few more times in our lifetime. Even so, the money you put in is clearing your debt. If at the end of your term (5 years for example) you remortgage with another provider your equity will be higher and your remortgage amount lower.  If you work out the effects (using the spreadsheet mentioned) you can clear so much future debt to the point where by one might advise to overpay on your mortgage up to the maximum permitted as a first priority (ahead of regular savings or investments) - i.e. clear your debt mountain (or at least make some inroads) before saving. Of course we need a cash buffer, an emergency fund and some cash lying around to cover holidays etc but if, like a friend of mine, you have £30,000 sitting i nyour bank account earning 0.00001% interest, put it to work and clear your mortgage faster. For me the one liability (and yes owning a house is a liability in cashflow terms) that costs you the most in life is your mortgage. For me, the one liability that keeps me locked into a well-paid, but unhappy job, is..... my mortgage. Imagine life where you are mortgage free! Your outgoings per month would be minimal giving you the OPTIONALITY and choice to do whatever you want. If you overpay per month what your bank will allow and pool all of your other savings and investments with the specific objective of morgage clearing you can get there rather quickly.  There is an article of a lady in these forums who cleared her mortgage in 18 months, I personally know somebody who over-payed and ploughed bonuses into clearing his mortgage and he was clear with four years giving him so many more choices about what he did and how much he needed to earn (or not) to enjoy his life.

Dear mwinlow Be carefull with online calculation they do not give you the full picture many of the low rates that you see advertises have high or very high admin fees which mitigate the savings of changing the mortgage over Also you have to own a stubstantial amount of equity 40% befor you will get the very low rates then you have solicitors costs valuations to take into consideration plus not just fixed rate penalties but exit charges and TT charges You must take all costs into account before changing That is why it good to have an honest mortgage broker however the government and banks have put most out of business now with red tape on the governments part and greed on the banks part Allbanks will want to do business with you especially if they can sell you something other than the mortgage 5,89% may seem a high rate but it's possible that in 2 years time when inflation goes up due to the governments plan to print money ( known as quantative easing)the rates will go up again

mwinlow: Sorry I don't know of any online spreadsheets. But the one mau408 recommends, should work. Just add the upfront costs to the mortgage. The sheet should then tell you all you need to know. What you really want to compare, is interest-only models. Any re-payments you make can be seen as a form of investment. If you didn't put them into your house, you would put the money somewhere else with a roughly equal interest rate. With an interest-only-calculation, it works like this: On your current, higher rate, you pay x1 % of interest on a sum of y1, resulting in monthly interest-payments of z1. After n years, your total debt is the same as now. On your new, lower rate, you pay lower x2 % of interest on a higher sum of y2. Probably resulting in lower monthly interest-payments of z2. Your total debt is higher than before, as it is y2 (y1 plus the fees & costs of re-mortgaging). But your interest payments are lower than before. So every month you re-gain a bit of those initial fees you paid (z1-z2). If you now invest this monthly savings (z1-z2), you can earn interest on it. At least as much as your mortgage interest x2, as you can simply overpay by that much. So in the first month you earn (z1-z2)*x2/12. In the second month, twice as much, plus the interest on the interest. Etc. So at the end of the timeframe (n months), your total debt is y2 (which is y1 plus the fees), minus your monthly savings and the interest you gained on them (and the interest on the interest). There is a formula for that but I don't know it off-hand. Then you simply compare your total debt at the end of the time you are looking at. Which one is higher? I am not saying you should switch to an interest-only mortgage. I am just using it as an example as it makes the calculations more transparent. Any re-payments you make in addition to the interest-payments can always be seen exactly the same as if you made payments to a regular savings account with the same interest rate as your mortgage.