A mortgage overpayment calculator is a tiny bit of software, maybe a spreadsheet or in a website that gives you a picture of what savings can be made by paying a bit extra each month on your mortgage.
It can give you an idea of the size of a retirement lump sum as it shows you the cash savings and the length in years you can cut off your mortgage.
Any money saved and any money you would be normally paying in the knocked off years goes into the pot for your retirement.
OK, down to facts and figures. A mortgage overpayment calculator lets you input all your mortgage related figures, like the amount borrowed and the interest rate and the length of the mortgage.
Now you put your figure in for the overpayment. This can be anything you can afford. Try different figures for different results and see what you could save.
When you put the figures in you get out an amount of cash you will save and a number of years knocked off the mortgage.
What do we mean by that? Well, if you put a certain set of figures in for a 25 year mortgage the calculator might tell you that you could save 15 or 20 grand and knock 5 years off the mortgage.
The result is dependant on the figures input. An example of a 5% interest mortgage of 100 grand over the normal 25 years. If you paid an extra 100 every month you could knock 6 years of the length and save yourself 20 grand.
You save 20,000 and your mortgage is off in 19 instead of 25 years. Yet how does this build a retirement pot you may well ask?
Well, you aren’t paying anything for the remaining 6 years, but you thought you would at the outset, so why don’t you?
If you did continue to pay for the last 6 years on the example we used above you would have 6 years times 12 months (72 months) times the monthly payment you were making of roughly 685 which amounts to a staggering 50 thousand.
When you took the mortgage out you expected to be paying for 25 years so why not continue and save yourself a handsome pot of 50 thousand.
When 25 years arrives you are sat looking at a sizeable sum that is all your money and not the banks.
On the example the payments would be 580 a month and then 680 if you overpaid by 100. It may be difficult in the early years but it gets a whole lot easier to find 680 as the years progress. And think of the nest egg at the end?
There’s a mortgage overpayment calculator on my site that you can have a play with. I’m sure the potential savings will open your eyes.
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