How is a mortgage-free date worked out?
From three figures: what you owe, the interest rate and what you pay each month. Each month interest is added and the payment comes off, and the date is the month the balance reaches nothing. £150,000 at 4.5% with £1,200 a month clears in 14 years 1 month; at £1,400 a month, in 11 years 6 months.
The month-by-month version
Month one: £150,000 × 4.5% ÷ 12 = £562.50 of interest. The £1,200 payment clears that and takes £637.50 off, leaving £149,362.50. Month two starts from there, with slightly less interest and slightly more off the balance. Repeat until the balance is gone.
The shortcut
With a fixed rate and a fixed payment there is a formula. With the balance B, the monthly rate r (the annual rate ÷ 12) and the payment P, the number of months is −ln(1 − B × r ÷ P) ÷ ln(1 + r).
If B × r is larger than P, the payment does not reach the month's interest. There is then no date at all: the balance grows.
What moves the date
- Overpayments bring it closer, and by more the earlier they are made.
- Rate changes move it: a higher rate with the payment unchanged pushes it back.
- Missed months push it back, because interest still accrues.
- A change to the term moves the contractual date with it.
Why any date is an estimate
The rate on most mortgages will not stay the same to the end, so a date beyond a fixed period assumes a rate nobody knows yet. It is a projection from today's figures, and it moves as they do.
That date is what Mortgage Meadow is built around: recalculated from what has actually been paid, with each overpayment's effect shown as it is logged. The method is published in full in how we work it out.
Questions people ask
What is a mortgage-free date?
The month a mortgage balance is projected to reach zero, given the balance, the rate and what is paid each month. It moves when any of those change.
Is my mortgage-free date the end of my mortgage term?
Only if every contractual payment is made, the rate matches what was assumed and nothing extra is paid. Overpayments applied to the term bring the date forward; missed payments push it back.