only 7 years to go will overpaying shorten term

david69_2

I've had my mortgage for 18 years and i would like to know if i could still pay it off early .
heres my breakdown:
total outstanding £60000
interest only £35000
repayment £25000
interest rate 4.35
monthly payment £483
7 years to go
endownment was meant to clear but will fall short estimated payout £22k min
If i overpay should i reduce the interest only part first I've got a small lump sum £5k i can use to start with then i can overpay up to £400 a month

StuartGMC

David
Usual questions below:

1) Do you have additional emergency savings (3-6months income) plus the £5k, and have a budget to cover other costs like holidays, cars etc which leaves the £400 per month?
2) What terms is your mortgage lender applying to a lump sum repayment?
3) What terms is your mortgage lender applying to a regular overpayment?
4) Do you have any ERC (early redemption charge) but also, if your endowment runs for a further 7yrs, can you find a means to pay all off early? (We went repayment so I will expect those with experience in the endowments and steps they took will assist on this point regarding cashing in etc)

I assume your repayments are scheduled to cover the repayment part plus your interest on the I/O, and, provided the endowment does give £22k (at term) then you need to reduce the I/O by at least £13k to match?

If you OP £400 per month against the I/O then you'll reduce that by £13000 in about 2yrs and 9mnths, plus the interest will be reducing as the sum reduces. So in less than 3yrs of that OP you would have accommodated the present estimated shortfall in the endowment, which should improve your feeling of security. Thereafter you would be reducing the capital owing and thus interest charged on it (repayment or I/O).

Hope that helps to start things moving forward and best wishes

david69_2

I've got enough put away to cover emergencies but do you think i should just op and not use the £5k ?

StuartGMC

As noted you need to see if there is any charge for a £5k lumpsum repayment. If not, or it is an acceptable fee and you've stated you can afford to put this into the mortgage now, it would seem sensible to put it against the interest only part.

Anyone else have a view on this?

Overpaying is also recommended. The manner in which you do so will depend upon the lender's T&C. Speak to them in person.

Best wishes in clearing this faster than 7yrs.

david69_2

I need to look up my mortgage terms I only remortgaged a jan 08 and I'm sure there wasn't any penalty for overpaying or a lump sum but i will check first

jamesd

Does the endowment have a mortgage promise or similar undertaking that it will pay off the mortgage? Overpayments on the mortgage may invalidate that guarantee, costing you a significant amount of money.

It this applies to you then you'd probably be better putting overpayment money into savings or investments, then using them to pay off any part of the mortgage that the endowment plus guarantee payment doesn't cover.

The endowment is probably set up to pay off the interest only part. If so, you may be able to overpay on the repayment part without losing the guarantee.

So: don't overpay until you find out about any guarantees and what they let you do without losing the guarantee.

Welshlassie

A very rough calculation on Egg shows that if you OP £400 and lump off the £5k you will save 1 year and over £7k in interest. This is a rough calculation and usually the OP are applied equally to both part using this calculator, but you would be saving more interest if you paid any OP against the interest only element.

Assuming all the other conditions have been met as mentioned by Stuart etc above go for it

StuartGMC

Jamesd
Thanks for highlighting that aspect of guarantee/impact of OP; as noted, never had an endowment ourselves.

david69_2

I will check the mortgage promise when i get the statement through shortly .
I'm thinking of just paying the £5k off and just banking the rest and then pay another £5k off in a couple of years that should sort the interest only part

jamesd

Welshlassie wrote: »

you would be saving more interest if you paid any OP against the interest only element.

All that matters is that it is taken off the capital. If it is, the effect is identical if the interest rates are the same.

Overpayments generally are taken off capital, though a few lenders might treat them as advance payments instead if you don't say otherwise. You'd want to verify with the particular lender how they apply them.