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Belbarid t1_iy8pr85 wrote

>I just don't understand how they can calculate this amount of difference in repayments..

Amortization tables and calculators. U.K. is probably a little different, but in essence an amortization table shows the relationship between your total mortgage amount, your interest rate, your remaining principle amount, your loan length, and your monthly payment. Change any part, such as your interest rate, and the table can be rebuilt showing the effect of that change. If your interest rate goes up, the table will show how your payment is affected, based on how much longer you have on your loan and how much of the principle you've paid off.

Which leads me to a big piece of general advice. Overpay and make sure that your overpayment is applied to principle and is not applied to your next payment. Even small reductions in your principle can have a large effect on your length of payment, which in turn reduces the amount of interest you pay.

Find a good amortization calculator online and play with the numbers. Find out what happens if you overpay £50 per month, for example.

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Unlikely_Concept5107 t1_iy9yyih wrote

Here’s a question for you (if you don’t mind answering!).

If you calculate what you can afford to pay per month when taking out a mortgage, are you better going for a lower repayment then overpaying the difference or just taking it out based on the max you can afford?

(I realise it’s stupid to take out the absolute max you can afford and should budget for rate increases, changes in circumstances, etc. but let’s go with it for the sake of this example).

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Belbarid t1_iyaxn9k wrote

The last two times I bought a house, I started with a soft limit and a hard limit on my mortgage payment. The soft limit is how much I intend to pay, the hard limit is the amount I will not go over, no matter what. Both amounts will be less than the max I can absolutely afford.

From there, my approach is to look at the numbers for a 30-year and a 15-year mortgage. Once I get those, I use an amortization calculator to see what happens when I overpay. If the payment amount is lower than the soft limit, I use that as the actual amount I pay. If the payment is between the two limits, I assume I pay the hard limit. Then I choose the mortgage that has me paying the least amount of interest over the lifetime of the loan. The mortgage on our last house was a 15 year and we had it paid off in 9 without stressing our budget.

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