Interest Only Mortgage Advice Needed

EllieMarie

Hi there. I am new to the forum, so hope this is the right place to ask the following question and would be very grateful for any advice.

I have an £80,000 interest only mortgage with the Woolwich @ 5.69% with 19years and 5mths remaining. I have approximately £4000 in an ISA currently paying about 4.5% interest.

I am becoming increasingly worried that I do not have a repayment vehicle for my mortgage. I am considering paying the £4000 off the capital for a start although this is currently my emergency fund - I have no other savings.

I am also considering starting to make overpayments which the Woolwich does allow. Money is tight however so was wondering if this could be a more flexible option than changing to a repayment mortgage. I am assuming (please let me know if this is not the case) that overpayments reduce the capital so over time the amount of interest I would pay would fall and I could therefore afford to pay more off the capital. Is this the way a repayment mortgage works or would I be better off financially changing to a repayment mortgage (funds allowing). I apologise if my knowledge is poor but I really want to make the most of my money. I would appreciate any advise, thanks in advance.

koexelek

Kwwp doing what you are doing now. Keep the mortgage on an interest only basis ( which means that whatever happens you know you only HAVE to pay the interest) but overpay whenever you can. Most Woolwich deals allow you to overpay 10% of the outstanding balance per annum without penalty, but check the small print to make sure.
They do calculate the interest daily, so you see the instant benefit of an overpayment. You are quite right, that any overpayment comes straight off the capital

eilz

If this was done, would you not have to pay some kind of tax on the overpayments you put in in the year? or does this only apply to 2nd homes

koexelek

eilz wrote: »

If this was done, would you not have to pay some kind of tax on the overpayments you put in in the year? or does this only apply to 2nd homes

No tax at all on the main residence, even for a higher rate taxpayer.
That's why it's such a tax efficient thing to do

Rikki

Woolwich interest only mortgages allow you overpay by any amount. Its repayment mortgages which have the 10% limit. Check with the Woolwich to be sure.

koexelek

Rikki wrote: »

Woolwich interest only mortgages allow you overpay by any amount. Its repayment mortgages which have the 10% limit. Check with the Woolwich to be sure.

They don't if you are on a product with a tie in ( fixed or tracker).
Whether it is interest only or repayment, you can only overpay 10% without penalty if you are on of those type of deals.
If you have a deal with no ties, you can overpay what you like whether you are on interest only or repayment

Rikki

koexelek wrote: »

They don't if you are on a product with a tie in ( fixed or tracker).
Whether it is interest only or repayment, you can only overpay 10% without penalty if you are on of those type of deals.
If you have a deal with no ties, you can overpay what you like whether you are on interest only or repayment

I have a no ties deal and can overpay as much as I like. I just need to find more money to do so. :rolleyes:

koexelek

Rikki wrote: »

I have a no ties deal and can overpay as much as I like. I just need to find more money to do so. :rolleyes:

I can overpay as much as I like on mine too.......

.... just glad I can pay the normal payment at the moment though

Rikki

koexelek wrote: »

I can overpay as much as I like on mine too.......

.... just glad I can pay the normal payment at the moment though

Mines a tracker so as the rate has come down, I've kept the payments the same. Every little helps.:j

koexelek

Rikki wrote: »

Mines a tracker so as the rate has come down, I've kept the payments the same. Every little helps.:j

Mine isn't.

It's a discount with Cambridge Building Society ( who have not cut their svr at all yet :mad: )

Mind you, their svr is lower than most people's anyway, and it's a decent discount with no tie ins at any time, so I musn't complain too much.

EllieMarie

Thanks everyone for clarifying a few details for me, much appreciated:T .