Overpaying on Interest Only Mortgage

lobster123

I'm looking to reduce the term of my current mortgage which is a £31,000 interest only mortgage with approx 9 years left. I've opened up a savings account (ISA) for the shortfall that I assume I might have. I manage to put away £100 per month into this account but wondered if would be better paying this directly towards the mortgage. I have managed to save up approx. £2,300 so far.

The mortgage is with the Halifax and I pay £186 per month and can easily afford to increase my payments. I'm really confused about Endowment mortgages and wasn't sure if you could actually make overpayments! Do I have to wait until the end of the 25 year term before the endowment matures before I pay the house off? Does this even make sense

Thanks in advance.

abouttimetoo

Hi Lobster23

I'm not sure whether I can answer all your questions but here goes

• yes, all advice agrees that you should use your £3600 ISA allowance first (don't know if you are part of a couple but if so and you can afford it then you should have one each)
• should you have any spare money once you have filled your ISA allowance then you can think about making overpayments to your mortgage but this should only be if your mortgage rate is higher than the amount you could get in a high interest rate after tax
• whether you can overpay into your mortgaage should be checked with your mortgage provider as there are many terms and conditions you should make your self aware of - I've not heard of not being able to make overpayments jsut beacuse you have an endowment policy and I know many people who have who still make overpayments

Assuming you can only afford to save the £3600 in ISA per year do you have any other plans to address the shortfall? Do you know if there is a current shortfall and what it is?

Regards

dimbo61

You have not told us your interest rate ?
Contact the halifax and ask if you can overpay and if any limits !
If you are paying the SVR of say 6.7% then its better to overpay than save into an ISA with an interest rate of 6%.
Each time your overpay you will be clearing a little off the mortgage and if you keep the mortgage payment static you will be overpaying by a slightly larger amount the next month because you have less interest to pay.
if you can overpay and save into an ISA then you have no need to worry about the endowment ( or even cash it in and pay it off the mortgage ! )

lobster123

Thanks for the advice everyone. My ISA is paying 5% and the interest on my mortgage is 6.9%. I'll contact the Halifax tomorrow as it looks as tho' I'd be much better off overpaying. I could probably stretch to £150 per month.

Ancalime

Hi Lobster123
I work for HBOS as a mortgages consultant (a phone bunny) I am not a mortgage adviser. With Halifax you can make up to a 10% over payment within a 12 month rolling period. So you can pay the 10% divided up over 12 payments or make a lumpsum once every 12 months. When you phone up ask the agent to do the calculations for you and to send out confirmation in writting, the processing department can do this for you.

Hope that helps

CLAPTON

lobster123 wrote: »

I'm looking to reduce the term of my current mortgage which is a £31,000 interest only mortgage with approx 9 years left. I've opened up a savings account (ISA) for the shortfall that I assume I might have. I manage to put away £100 per month into this account but wondered if would be better paying this directly towards the mortgage. I have managed to save up approx. £2,300 so far.

The mortgage is with the Halifax and I pay £186 per month and can easily afford to increase my payments. I'm really confused about Endowment mortgages and wasn't sure if you could actually make overpayments! Do I have to wait until the end of the 25 year term before the endowment matures before I pay the house off? Does this even make sense

Thanks in advance.

very difficult to understaned what you are saying

1. an interest only mortgage is never paid off because you are not paying any capital back , only interest ..which is why it is called an interest only mortgage

2. are you saying you have an endowment policy related to your mortgage.. if so how much is it worth?

GettingThingsDone

very difficult to understaned what you are saying

1. an interest only mortgage is never paid off because you are not paying any capital back , only interest ..which is why it is called an interest only mortgage

Hi Clapton - there's nothing stopping the OP from paying off the capital though (there maybe limits in the terms and conditions). 'Interest only' only applies to the way the regular payments are calculated.

Hope that helps

gtd

dimbo61

So your target is to overpay by 10% this year as ancalime has said and move your cash ISA,s to a better paying account.
Try to overpay by 10% each year and fill an ISA each year ! TALL ORDER

CLAPTON

GettingThingsDone wrote: »

Hi Clapton - there's nothing stopping the OP from paying off the capital though (there maybe limits in the terms and conditions). 'Interest only' only applies to the way the regular payments are calculated.

Hope that helps

gtd

Yes indeed, but I always like to understand the question and clearly if one is only paying the interest then the mortgage never ends. Which is why I asked about an endowment... I see no point in guessing when the OP can make the situation clear with only a sentance or two.

firesidemaid

if your mortgage is over 30k then ask the halifax for a better deal or try and look for one elsewhere - that is a high rate.

also, what does your latest endowment statement say that your policy is on track to make? how many years is it over?

Rikki

Ancalime wrote: »

Hi Lobster123
I work for HBOS as a mortgages consultant (a phone bunny) I am not a mortgage adviser. With Halifax you can make up to a 10% over payment within a 12 month rolling period. So you can pay the 10% divided up over 12 payments or make a lumpsum once every 12 months. When you phone up ask the agent to do the calculations for you and to send out confirmation in writting, the processing department can do this for you.

Hope that helps

Interest only mortgages do not normally have this restriction. Check with your lender.