1

I've been frying my brain over a mortgage comparison for a house I'm buying.

It comes down to what I hope is a simple maths problem to someone who is actually good at maths, unlike me.

1) Mortgage A has a fixed interest rate of 1.89%. This mortgage allows overpayments of £500 or over to trigger a recalculation of the interest and shorten the term (as opposed to reducing the monthly payments).

2) Mortgage B has a fixed interest rate of 1.99%. This mortgage requires overpayments of £4500 or over to trigger a recalculation of the interest and shorten the term (as opposed to reducing the monthly payments).

At the end of a 5 year period (for comparison's sake), if we didn't overpay, mortgage A would be roughly £1200 cheaper.

During those 5 years, what would be the impact of overpaying by a total of £10000 in small £500 regular chunks VS bigger, less regular, £4500 chunks?

If possible, can you show the working, rather than just the result, so I can see how you've done it and learn for future reference?

Thanks in advance for your help.

David K
  • 98,388
Andre
  • 111
  • If you have to wait until you have saved enough money to make an overpayment, then the first £4500 payment could only occur at the time when you would have made the ninth £500 payment. It does not seem as if this can be an advantage for Mortgage B, although the details of what you mean by "recalculation of interest and shorten the term" are a little unclear. – David K Sep 12 '16 at 22:45

0 Answers0