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Paying Extra Off a Interest Only Mortgage

2Sheds
Posts: 295 Forumite


We had a part interest and part repayment mortgage with the Nationwide, but due to years of overpayments I got the repayment part down to 5,000.
Then finally we came off a 5 year fixed rate and dropped to the Nationwide's BMR of 2.5%
As my endowment will be thousands short and ends in only about 2yrs, I'm going to carry on overpaying as much as I can, while I have a job!
So I changed the whole mortgage to interest only of around £50,000, as this made the monthly payment another £35 cheaper. Giving me an extra £35 to pay off the mortgage.
So I'll pay the monthly payment of about £100, plus another £250 extra a month to reduce the amount owed.
A repayment mortgage (14yrs) for the same amount £50k is around £350.
So by doing this I'll reduce the total owed by £250 a month and thus in turn reduce the next monthly payment slighty, meaning I can pay off a little more the next month and so on.
Or have I missed something ??
Then finally we came off a 5 year fixed rate and dropped to the Nationwide's BMR of 2.5%

As my endowment will be thousands short and ends in only about 2yrs, I'm going to carry on overpaying as much as I can, while I have a job!
So I changed the whole mortgage to interest only of around £50,000, as this made the monthly payment another £35 cheaper. Giving me an extra £35 to pay off the mortgage.
So I'll pay the monthly payment of about £100, plus another £250 extra a month to reduce the amount owed.
A repayment mortgage (14yrs) for the same amount £50k is around £350.
So by doing this I'll reduce the total owed by £250 a month and thus in turn reduce the next monthly payment slighty, meaning I can pay off a little more the next month and so on.
Or have I missed something ??
0
Comments
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The flexibility of IO is treasured by some.
But, personally, for me, the discipline of knowing what you are paying out and that the capital is being eroded is more important. 25 years is a hell of a long time to be paying interest, I wouldn't want to risk paying for longer if some overpayments on IO were missed due to "Xmas", "boiler breakdown" or whatever...
If you can find a repayment product that also allows flexible overpayments, then thats the best of both worlds.0 -
hi there, if your mortgage has no overpayment limits then the only difference between having "interest only" and "repayment" is the minimum you have to pay every month.
Changing it all to interest only won't make any difference, all a repayment mortgage does is factor in the capital into your monthly payments over the term of the loan to make sure you have £0 capital outstanding at the end.
So it just depends on what you want your minimum payment to be. Personally I would prefer to have it on repayment then I would know that every penny I paid over my monthly payment was going towards repaying my mortgage before the end of the original mortgage term.
If you want to pay off your mortgage in 14 years then £350 is the minimum you need to pay every month to reduce the capital enough. The fact that you are paying it as £100 (which will decrease each month) contractual payment and the rest up to £350 as overpayment is exactly the same as paying £350 contractual payment on a repayment mortgage still has the same end result of the mortgage being paid in 14 years.
The only benefit you have is that if you can't pay £350 one month then you don't have to worry as long as you meet the interest payment BUT if you don't pay a minimum of £350 every month then you will have capital outstanding at the end of the 14 years that you will need to find from somewhere.
You are correct that each month your overpayment comes of the capital and therefore your interest the following month will be lower but you still need to pay £350 every month to pay off in 14 years.
Sorry I probably didn't explain that very well!0 -
Keep up the good work and if you have any extra cash either pay it into an ISA or overpay even more.
Have a look at your endowment and see if its worth keeping for the next 2 years or better to sell now and pay a lump sum off the mortgage and then overpay even more as you will save the monthly premium on the endowment.
GOOD LUCK0
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