How to Calculate Mortgage Overpayments

End your mortgage early by overpaying.

Overpaying your mortgage means that you'll make payments above the cost of your mortgage payment every month so that you can pay off your entire loan sooner. It's a great way to save money, as long as you don't have penalties in your contract for early payoff, so check with your lender before you decide to overpay your mortgage. Once you've overpaid your mortgage and reduced your overall debt, you can even apply to new lenders and try to get a better rate on your smaller mortgage, which would save even more money in the long run.

Instructions

1. Find out how much you still owe on your mortgage, including the interest. Your lender can give you this information over the phone.

2. Decide how much you want to overpay each month. If you're paying $1,000 to meet your mortgage obligations, for example, you could decide to add an extra $300 onto that total each month, meaning that you would be paying $1,300 toward your mortgage.

3. Divide the total cost of your mortgage by the regular payment amount. If your mortgage is $130,000, for example, then you would have to divide 130,000 by 1,000. The answer, 130, is the number of payments you'd have left. Divide the number of payments by 12 to find how many years you will pay on your mortgage without overpaying. In this case, it's slightly less than 11.

4. Divide the total cost of your mortgage by the overpayment amount. Continuing with the example above, if your mortgage is $130,000, you would divide by a monthly overpayment of $1,300. The answer is the number of months your mortgage will last while you make overpayments. In this case, it's 100 months. Divided by 12, your mortgage would only last for about eight years and four months.

5. Subtract the mortgage term with overpayment from the mortgage term without overpayment to see the difference in your mortgage length if you overpay. In this case, you'd subtract 100 months from 130 months, leaving you a difference of 30 months or two years and six months. This means that your mortgage overpayment would end your mortgage two years and six months early.

References

• Money Savings Expert: Should I Pay or Save?