overpaying interest only

wends01

Currently have mortgage with nationwide at 2.5%. Current mortgage is part repayment, part interest only - the bulk being interest only.We have currently been overpaying and the part on repayment is almost paid off leaving £60,000 interest only, house is worth around £220,000, mortgage has around 6 years left.

Am now in the postion of being able to pay a lump sum of £10,000 off and will still want to make monthly overpayments as well so do I need to convert some of the £60,000 to repayment or can it be taken off the interest only bit ?

Can't get a straight answer from Nationwide, so any help would be appreciated

getmore4less

If no penalties or early repayment charges you should just be able to pay the money in.

redpete

It all depends on the Ts&Cs of your mortgage agreement - which you and Nationwide have.

Have you asked them a nice simple question - like "Can I pay £10k off the mortgage and what difference will it make to the monthly payments?"

You might have to pay some early repayment penalty fees, and these might be enough to make it not worth paying off some or all of the amount - or you might not have to pay any or they might small enough so it is still worth paying it off.

wends01

No penalties, can overpay as much as i want

Pincher

The interest calculation can be done daily, monthly, and annually. With some interest only mortgages (not repayment), the overpayment isn't applied until the next cycle. In the worst case scenario, you make a payment in January (now), but it is only used to reduce the principal on 31st December. So you should have a glance to see which cycle they use, and pay the lump sum just before the next cycle.

KarenBB

DH's mortgage is with Nationwide, he overpays every now and then by £500 whever he does this his payment is recalculated. They have daily ineterst so as soon as you make a payment the balance comes down and interest is charged on the new balance.

I can't see why you'd need to make any changes to the amount that's on interest only, just make the payment and whatever the balance is left will all be on interest only.

Joe_Bloggs

@wends01
Just treat the interest only mortgage as a repayment mortgage and make the appropriate capital repayment to put you on the repayment timetable.

£60000 @ 2.5% over six years as repayment is £898.26 , interest only is £125.00 per month.
Thus an overpayment repayment schedule should be £773.26 capital + £125 interest.
Next months interest is 123.39

£50000 @ 2.5% over six years as repayment is £748.55 , interest only is £104.17 per month.
Thus keep on a repayment schedule the payments should be £644.38 capital + 104.17 interest.
Next months interest is 102.82.

It is probably not worth changing the payments on a month to month basis, if the interest rate remains the same. When rates change then by all means recalculate the equivalent repayment schedule given the term left the existing capital and the new interest rate.

The FSA have a mortgage calculator here.

J_B.

dimbo61

Have you filled your ISA allowance this year £3600 and £5100 from April
You should get 3% tax free !

wends01

Hi,

Thanks for all your replies esp Joe_ Bloggd that was really useful.

Will look at Isa`s - have some money to invest as well - have just sold my late mum's house

dimbo61

Sorry to here of your recent loss
good luck

wends01

dimbo61,

thank you, it's been a tough 6 months