How much interest over 2 years...?

springclean

Hi all,

this may be a stupid question, but please don't flame me if it is...:o

I'm a single mum and i took over my house a year ago after splitting with my ex. Ideally I would have liked to have sold up and split the equity, but the market was stagnant so we reached an agreement where i would buy him out and sit tight until hopefully things improved.

As i was unsure how i'd manage on my own, i took out an interest only mortgage, which by the time things were finalised had almost halved in terms of the monthly payment, due to the drop, drop, drop of the BOE base rate. i'm also lucky that i have a 'loan to value' mortgage of less than 60%, so i got a great rate (i think 1.99% above base rate).

While that's all nice for me, i am aware that i have a large mortgage loan that is still to be paid someday, so i have been putting some cash away each month to pay off at the end of my mortgage's 2 year term - so in my head i am paying off the loan as if it were a repayment mortgage.

So my question. Can anyone help me understand how much (ball park figure) i could expect to pay off a 2 year mortgage if it was a repayment loan...?

I don't want to play at it, but also want to live a bit as well, so dont want to throw all my money at it.

Any advice greatly received.. Many thanks

Israfel

Hi Sprngclean, I usually use one of the online mortgage calculators to figure these out. Try the bbc mortgage calculator to help you figure out the sums. There may be a more apt one out there for you so a quick google search might be worth while but thats should help

Israfel

Try what-mortgages overpayment calculator too, thats pretty handy

dimbo61

Hi springclean
You are living in the property with you child/children ?
Your EX is the father of the kids ?
Is he paying half the mortgage even if its interest only ?
You are only paying 2.49% interest on yout IO mortgage YES?
You should keep your savings in the bank hopefully in cash ISA,s earning over 3% tax free and also consider regular savers.
Is your EX paying child support for his kids ?
When you come to sell the property the courts or you and your EX will decide how much equity you should get out of the property therefore you should not pay any of the loan off with your savings !
Does your EX tell you how much he now earns ? or how much he has in savings ?
You should also get a larger share of the equity in the property because you have to provide the new home for yourself and the kids.
You mght need to see a solictor over this GOOD LUCK
Your mortgage may well be over 25 years and you currently have a DEAL over 2 years, at the end of the deal you can stay with your existing lender and take a new deal ( borrow more if you can afford to and pay off EX )

mr_tickle_2

springclean wrote: »

Can anyone help me understand how much (ball park figure) i could expect to pay off a 2 year mortgage if it was a repayment loan...?

If you had a 25 year repayment mortgage I'd expect you to have paid off around 6% of the mortgage value after 2 years.

springclean

thank you, but perhaps i should have explained more. i live with my daughters (20 + 17, youngest in college). ex was a long term partner, still a good mate but not their dad and not on mortgage (their dad is self-employed with his own business and pays the princely sum of £45 a month CSA..i really don't want to go there :mad:). i bought my ex out so the mortgage is in my name only and i'm totally self-sufficient.

I took out £108,000 over 20 years and currently pay £225 a month (now you see why it was worth me staying rather than selling at a loss and then finding rent money!). i'm not a high earner but not a big spender either, and budget well. the mortgage is my only debt.

from one of the calculators supplied, i realised if i had taken on a repayment mortgage i would have paid back £8k ish over the 2 years given the monthly payments less what i'm paying now, which i think i can do.

does anyone think it is ever worth it to keep taking on IO mortgages, and then saving separately and paying off a big chunk either when it ends, or as extra payments...?

thanks again for your help in this.

theartfullodger

does anyone think it is ever worth it to keep taking on IO mortgages, and then saving separately and paying off a big chunk either when it ends, or as extra payments...?

Depends (on many things...)

I assume you've read the mortgage paperwork & know that you can pay sums off the outstanding mortgage without any penalties/fees.....??

Trade-off between saving-separately and paying off is what interest rates are being paid... Usually the lenders/banks make a "turn" on the difference between what they lend and what they give for deposits... If you were feeling bold & confident you might want to consider some riskier deals (eg Zopa which pays me about 8% at the moment...)

'tother thing to consider is that (sorry about this but it is fact & has to be faced..) the last time the Conservatives took power interest rates hit 17% quite quickly & stayed in the 10's for some years...

At least you have a big chunk of equity in your home..

'nother thing to consider is, when the mortgage ends would you anyway (wot with the kids departing..) want to move somewhere smaller/cheaper anyway so might not want to pay all the mortgage off..
.
finally, do you want to have fun with your money now/next-few-years or do you want a comfortable retirment when fun-ain't-so-much-fun any more??

Cheers!

Lodger ('bus pass holder: All offers of fun gratefully received!)


Cheers!

Lodger

springclean

wise words Lodger, for which i am grateful!

yes, i will probably downsize in a few years, but all i can see is this great big mortgage amount and i don't like having debt. that said, the house is worth around £190-200k, so i know i'm pretty secure with it. i only got the IO mortgage as i was unsure how i'd manage, but i'm sensible enough to know it still has to be paid someday. so perhaps live a little, save a little, and keep my sensible head on (in the words of Worzel Gummidge).

thank you!

jamesd

It's worth considering that if you save you have that money under our control and can use it to do things like make the required mortgage payments if interest rates increase or if there's a glitch in your income. That's very useful protection that you don't get if you've already used the money to reduce the mortgage balance. It seems likely that interest rates will go up a lot over the next few years and may need to surge for a year or two to more than ten percent if inflation becomes a problem, so personally I'd be looking to keep lots of cash or liquid investments around to handle that payment shock if it happens.

So long as you're accumulating savings and investments on average at the same rate each month as you'd be paying in repayments on a repayment mortgage you should be fine. You can find out how much that difference is by using a mortgage calculator and putting in repayment mortgage first, noting down the repayment, then switching to interest only. The difference between the two monthly payments is the amount you need to be trying to save each month.

Over time inflation in wages and benefits will reduce the real value of the mortgage and make it ever easier to repay, so there's no harm in giving it a few years for that to happen. A bout of high inflation is good for borrowers because the income rises that follow make it easier to pay off the fixed amount debts from the higher incomes. But you do need to have the savings or income to cover the temporarily higher interest rates that are normally introduced to fight the inflation.

Once you have sufficient money in savings to cover monthly payments for a couple of years even at say 12-15% interest rate then you could start to look into reducing the mortgage capital. Until then, getting that safety margin seems more important to me.