Bit of a dumb question over mortgage

PienMash_2

Hi there,

If one has an interest only mortgage say for arguments sake is 600 per month and say the repayment is £800. If you put that extra £200 in a savings account and pay it off in lump sums to the mortgage company would you pay the mortgage back at the same time as if you were paying the mortgage company £800 per month.

Hope that makes sense

SO for example after 2 years of paying interest only at 600 if you saved that extra 200 per month and gave the mortgage company a cheque would you be in the same situation if you were paying them £800 per month at repayment.

Thanks

blueberrypie

PienMash wrote: »

Hi there,

If one has an interest only mortgage say for arguments sake is 600 per month and say the repayment is £800. If you put that extra £200 in a savings account and pay it off in lump sums to the mortgage company would you pay the mortgage back at the same time as if you were paying the mortgage company £800 per month.

Yes, *if* -

- you received an interest rate on your savings which was equivalent to the interest rate on your mortgage - remember that savings are taxed, so you'd have to look at the after-tax interest; and -

- your mortgage provider allowed you to make bulk payments like this. I've never had an interest-only mortgage, so I don't know how extra payments on them usually work, but on repayment mortgages, there are usually limits, either per month or per year, for how much you can overpay before you incur penalties.

maninthestreet

What about the additional interest accrured on the mortgage by the £200 monthly amounts that don't get paid off until the lump sum payment is made?

TrickyDicky

maninthestreet wrote: »

What about the additional interest accrured on the mortgage by the £200 monthly amounts that don't get paid off until the lump sum payment is made?

Thats where the quote about savings interest and mortgage interest comes in above.

Basically, if you can find a savings rate higher than your mortgage, you're better off only paying the interest on your mortgage and investing the rest in a savings account. Otherwise its better to just pay off the mortgage.