Changing interest rates on Dr Karl has me confused

B

Black_Knight

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I've played around with Dr. Karl to plan out our mortgage repayments (as much as can be planned), and with the introduction of Avant I said i'd plug in their rates at the end of our fixed term mortgage.

Our current mortgage is about 240k @ 2.6% until the start of 2025, due to end in 2052 if we just tip away at the current interest rate. With what I feel are attainable overpayments, I've reduced the term down from 32 years to 16 years and 2 months according to Dr.Karl. All of that assumes a rate of 2.6% for the life of the mortgage. Without predicting the future i'm going to assume in 2025 I can get a rate of 2.1%, but when I plug this into Dr.Karl I get a term length of 18 years 3 months.

Is there something I'm missing here, or does Dr.Karl have a bug?
 
Unless you adjusted your extra payments at the same time as the interest reduction, your mortgage payment is going to drop from around 1,571 to 1,352 p/m (assuming an overpayment of ~650p/m based on the figures above).

Mortgage amortisation means more of your payment goes towards the principal rather than interest later on in the mortgage and your overpayments only accelerate this.

By about 2033 90% of your payment is going towards the principal but since you're paying €219 less p/m after the interest rate change, you're actually repaying slower.

You are still going to save the guts of 2k in interest though.
 
Thanks for that! You, Karl suggests 2k of savings in the end. Ill play around with it again tonight and see what happens if we maintain our existing planned repayments. ie. Same monthly outgoings regardless of any reduced rate.
 
Brendan Burgess said:
You do not need Dr Karl's calculator

Key Post - How to evaluate if it's worth fixing, switching or breaking out of a fixed rate

Almost every post on this topic is wrong. No matter how often it is pointed out, people look at the wrong figures. They use mortgage calculators when they don't need them. Most of the time, you can do the figures in your head. Do not look at the monthly repayments – they are misleading. Do not...
askaboutmoney.com
Click to expand...
Not sure I follow Brendan. I'm not looking to switch to Avant (or any provider given current rates), i'm just playing with theoretical mortgage rates when my current fixed rate expires (switching doesn't really make sense right now, over the remaining 4 years of my fixed mortgage i'd save ~3k with Avant, but between solicitor fees, valuations and breakage fee it'd only save a few hundred so i'm not bothered). While playing around I couldn't understand how a lower interest rate would result in a longer repayment time.
 
Hi BK

If you read the thread it will explain that you should never look at the full term of the mortgage. It's just not relevant.

This might help

Key Post - A guide to mortgage repayment calculations

As always, comments, corrections and suggestions for layout very welcome - Brendan There have been a few questions on askaboutmoney which have been very difficult to answer without explaining the background to mortgage calculations. For example: Bank of Scotland offer to write off my...
www.askaboutmoney.com

Brendan
 
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