HSBC Interest only mortgage (in two parts - interest only & capital repayment)

ams4

Interest only mortgage (in two parts - interest only & capital repayment)

I took a graduate mortgage with HSBC 5 years ago and due to my young years was forced to take an interest only mortgage to manage the costs on my own and get onto the property ladder. HSBC enforced a rule whereby they gave me the majority of the mortgage as 'interest-only' and the remainder had to be 'capital repayment' based.

For illustration purposes, this is similar to my situation:

100,000 mortgage
75,000 interest only
25,000 capital repayment (enforced HSBC rule)

The interest rate on both parts is the current HSBC variable rate 3.94%

The 25,000 'chunk' has been slowly reducing over the last 5 years

Question: I am now able to make large overpayments (about £500 a month) so which 'chunk' should I attack first? Does it matter?

Any assistance would be welcome!

Many thanks

dfh

Yes-Make overpayments as it will reduce the capital.Make sure that you are aware of how much you can overpay as some lenders will impose a penalty if you overpay by more than 10%.I would suggest tackling the interest free part.

ams4

Thank you for your reply, its currently a variable rate mortgage, having recently finishing a fixed rate period. I called HSBC and I'm now free to make unlimited overpayments anytime I wish and there's no limit on the amount paid back in a single transfer or annually.

...I forgot to mention, the two chunks are in separate mortgage accounts so I can pick which I attack first with cash in my current account. HSBC were on the fence about which chunk to attack first when I called them (not much help).

Any and all thoughts would be very welcome!

Peelerfart

I don't think legally HSBC could tell you which chunk to pay off as this might be construed as advice.

I also have two accounts with HSBC , one IO and the other repayment.

For my two pennies worth I have been kicking the proverbial out of the repayment one.This is because I have (constant) job loss fears and need to reduce the amount I HAVE to pay should I lose my job.

If I get to the stage where I have paid off the repayment side and I'm still in work I will then switch to kicking the proverbial out of the IO.

Does that make sense ?

PF