Interest Only Mortgage Advice Needed

Jennifer_Jane

I'm sure I saw on this Forum somewhere that when you are sending in an overpayment, that it should be done by cheque (mark the cheque payee with the Woolwich and your Account number) AND with a letter to the lender asking for the amount to be set against the Capital.

Jen
x

LadyIndecisive

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

Hi koexelek - does this apply to all lenders? I have an interest only tracker with C&G which ends in Jan and thinking of lopping off some capital because the rate is due to rocket to SVR of 6.5% currently.

djm1972

Hello Ellie,

Noone has mentioned the £4000 so I will make a couple of points.

Given the current financial climate; I would keep that cash to hand. Once you put it in your mortage that's it - it's gone (assuming that your mortgage does not allow any subsequent draw-down of overpayments).

At the moment you're earning 4.5% on that £4000 whilst paying 5.69% on the mortgage; so by my calculations it is only "costing" you £3.97 per month (that is what your mortgage payment would reduce by if you paid the £4000 off the capital).

Now, given that you're allowed to make overpayments; you are in the excellent position here of being able to create your own "repayment mortgage" whilst reserving the option to drop back down to interest only payments if money becomes more of a struggle in the future. Normally you would have to go through lots of hassle with the mortgage provider in order to drop from a repayment to interest only.

You can very easily calculate what overpayment you need to make in order to make your payment the equivalent of a repayment mortgage over the same term - simply use a mortgage calculator to see what the equivalent repayment amount would be and pay that!

So, taking your details of £80,000 at 5.69% over 19 years, making your monthly payment something like £379.33, the equivalent repayment amount is £574.90 - so if you ask to increase your monthly payment to that amount (a regular monthly overpayment of £195.57) you will clear your mortgage in 19 years.

HTH!

Rikki

Jennifer_Jane wrote: »

I'm sure I saw on this Forum somewhere that when you are sending in an overpayment, that it should be done by cheque (mark the cheque payee with the Woolwich and your Account number) AND with a letter to the lender asking for the amount to be set against the Capital.

Jen
x

That is also correct.

I have part repayment and part interest only with the woolwich.

To pay capital off the repayment side, this is just paid through monthly over payments.

To pay off the capital from the interest only side I have to send a cheque to the mortgage company asking them to take the amount off the capital from the interest only part.

djm1972

Rikki wrote: »

That is also correct.

I have part repayment and part interest only with the woolwich.

To pay capital off the repayment side, this is just paid through monthly over payments.

To pay off the capital from the interest only side I have to send a cheque to the mortgage company asking them to take the amount off the capital from the interest only part.

This is true but so as not to confuse the issue; this is simply because there are 2 distinct capital components to your mortgage.

For a "bog standard" interest only mortgage any overpayment will automatically come off the capital as there is nothing else for it to be applied to...

EllieMarie

Thank you djm1972 for your advise, you have explained it brilliantly.

To be honest it is the route that I had been thinking of making, but it really helps to get someone else to confirm my theory.

I would be able to reborrow (don't think thats the right techinical term:o ) any money I pay against the capital but it would be at SVR and not 5.69% and I would also have to apply for it and I'm not sure I would meet their lending criteria in the current climate. Although I do not have any other debt (well only a few hundred pounds on an overdraft) I am on a fairly low income, so not sure if I would qualify.

I have used the Egg mortgage calculator last night and did test the theory of as you said making my own repayment mortgage. There did seem to be a difference oddly of about £3000 in having a true repayment and an interest only mortgage plus overpayments, but I shan't worry to much about it at the moment.

I don't think I can make the full overpayments at the present time but I shall make as much as I can afford.

The other option I have been considering is selling (dodgy at the moment, I realise) and buying somewhere cheaper to reduce the size of the mortgage but be in a better position to pay it off.

I was given the advice when I bought my current home, not to worry about paying back the capital as house prices were rising and not falling, but I am worried now.

Thanks again.

djm1972

Hi Ellie,

Just wanted to point something out as I don't think it was clear in my original post...When making an interest only mortgage into a "virtual" repayment mortgage; you must make it a fixed total payment, not just a fixed overpayment!

In other words; having done the calculation as above, you need to keep paying the same amount every month. A fixed over payment would mean paying slightly less every month as the interest owed is reduced after every payment - and this WOULD NOT achieve the goal of repaying the capital over the same term!

getmore4less

With the barclays/woolwich morgages you should have a mortgage reserve account(mortgage current account if moved to barclays) the overpayments will start to appear there as an overdraft limit that you can take back at SVR(same rate as the mortgage if offsetting).

Summary definately keep your emergency pot, overpay when you can.

Probably worth a full review of your spends to see if you can cut back and find more money to overpay. have a look at the Debt free wanabee board for ideas of how to cut back.

A Statement of affairs is a great tool to get a handle on the budget.
http://www.makesenseofcards.co.uk/soacalc.html

EllieMarie

Hi djm 1972,

thank you for making the point about a fixed total payment and not just a fixed payment, I had not realised this:o .

Getmore4less I am currently reviewing my budget and trying to cut back. Although I'm new to the forum I have followed Martin's:money: advice for a couple of years now so am finding it quite tough to free up any further cash. I've capped my gas/electric, managed to get by council tax rebanded, changed my land line provider and used the comparison sites for car/house insurance etc, although the latter two are up for renewal shortly so maybe a bit to save there. My mission at the moment is to try and get my grocery shopping down as low as possible because this is one of the main areas left which I think I could save some money.:D