Karl Jeacles calculator

[mickpyrmont]

I got a link to the above on this website so did a little bit of playing around with it. Basically I saw that you are better off taking out a longer term mortgage and paying additional of the loan each month so for instance if say you took a mortgage out over 35 years with repayments of say €1,000 pm you would be better to do this and pay €200 extra pm rather than take a shorter loan for 30years and pay repayments of say €1,200 p.m. Does this make sense, im i correct? If so why is this the case?

 

[mickpyrmont]

Ok sorry if you cant follow, an example might be easier;

Example
Loan €200,000 over 35 years equals repayments of €1,004pm. Cost of loan is €223,934.56
Loan €200,000 over 30 years equals repayments of €1,073pm. Cost of loan is €186,513.24

So you decide to take a loan of €200,000 over 35 years, repayments are €1,004pm plus you ask the bank to reduce the capital of the loan by the difference of the monthly repayments between 30 & 35years, in this case, €69.31 and the cost of the loan is €184,153.00

So by prepayment you would save €2,360.24 over the life of your mortgage if you took out a 35year mortgage and paid the monthly repayments equal to what you would pay if you took a mortgage for the same amount over 30 years?

 

[Aesop]

So by prepayment you would save €2,360.24 over the life of your mortgage if you took out a 35year mortgage and paid the monthly repayments equal to what you would pay if you took a mortgage for the same amount over 30 years?

You are making prepayments each month so the term is no longer 35 years. According to the Jeacles calculator you have shortened the term by 5 yrs 3 months by making an additional monthly prepayment of €69.31.

 

[Satanta]

You are making prepayments each month so the term is no longer 35 years. According to the Jeacles calculator you have shortened the term by 5 yrs 3 months by making an additional monthly prepayment of €69.31.

The point the OP is making is that by taking out the 35 year term to begin with and making the increased payments (as if a 30 year term had been taken), you can make savings on what you would have paid by taking the 30 year term to start with (and the reduction in term of 5 yrs and 3 mths as you point out).

It's something I'm not familiar with, but certainly an interesting one. I'd have to have a run through the figures to see if/how this makes sense, but if it's true.... great spot!

 

[Aesop]

Example
Loan €200,000 over 35 years equals repayments of €1,004pm. Cost of loan is €223,934.56
Loan €200,000 over 30 years equals repayments of €1,073pm. Cost of loan is €186,513.24

I get different figures (What is your interest rate set to?)

Loan €200,000 over 35 equals repayments of €1,009.38 not €1004

That makes a big difference over 30 years!

 

[LDFerguson]

Camry has hit the nail on the head. All things being equal, there's no difference between a 35-year mortgage on which you overpay and a 30 year mortgage with the same monthly repayment. If a calculator says differently, either the calculator is wrong or the assumptions being entered into it are.

There's also an issue that a 35 year Mortgage Protection life assurance policy will be dearer than a 30 year one.

 

[TonyD]

That calculator is a great find.
Great for working out a budget, and just in general.