Overpaying Interest Only/repayment

loracan1

My mortgage has 9 years left to run, part repayment(18000), part IO(23000), currently overpaying by 211 into the IO portion and I have a standing order set up for 120 that I pay when I can afford - I can't designate which part this goes to, is a random thing (which for now I'm perfectly happy with). Uptil now I've thought it didn't make much difference which part I overpaid on as the interest rates are both 4.24 but I've been playing with the figures in various calculators and after frying my brain I can only work out it's better to overpay the repayment part. Any thoughts?

Joe_Bloggs

£18000 repayment @ 4.24% gives £200.77/ month. This by definition lasts for 9 years without overpayments, if the rate stays the same.

£23000 @ 4.24 interest only is 81.26 a month in interest. This is capital is unpaid without overpayments or a final payment of the capital.

For £23000 @ 4.24 paying interest of £81.26 with £211 overpayments is a total £292.37 per month towards the interest only part. Constant payments of this amount will converts this section of the mortgage into a repayment type that lasts just over 7 years eight months.

I do not think it matters where you make the extra overpayments if the interest rate is the same for both parts. Take care to avoid penalties for making overpayments. These penalties are lender specific and can have a quirky nature.
J_B.

Peelerfart

This question has been asked before and there are arguments for overpaying the I/O and the repayment sections.
Personally, with the overrider that Joe has said about Interest rates staying the same, I overpay the repayment before the I/O.

My logic is that if/when the repayment section is paid off ,that frees up much more cash to OP the I/O section. Also, in the event of redundancy for example, the amount you have to pay, each month is less.

I accept that there are arguments against this though.

dimbo61

Hi
Just a few questions
1 how are you going to pay off the IO mortgage in 9 years time?
2 do you have an emergency fund of 3/6 months of income in cash ISA,s ?
3 is the 4.24% rate fixed
4 as others have said be aware of any ERC if overpaying
Well done on the overpaying so far and paying on either part will reduce your debt and help you become Mortgage Free sooner. GOOD LUCK

loracan1

1. Have endowment which was targeted to pay off original mortgage of £41,000. That was rejigged to 25,000 a few years ago, it's worth total of 13,000 at the moment - predicted to pay off 20,000 at 4% (that's up in 7 years) I'm keeping it because it has death cover and my ex is happy to pay the premiums. I've already got this part down to just over 23,000

2. Have some savings, at decent interest rate but easily accessible. After discovering 'overpaying' I save less now.

3. It's on a variable rate, this is one of the things I've been trying to work out; I've been juggling the figures with overpaying on IO part or Rep part and I've been working out what the payments would be with various interest rates. I started tying myself in knots trying to work out where I'll be in 2 years. But with scenarios of 5% and 12% I seem to be better off paying into the Repayment bit. I'm not in a position to get a fixed rate.

4. There aren't any restrictions.

Peelerfart wrote: »

This question has been asked before and there are arguments for overpaying the I/O and the repayment sections.
Personally, with the overrider that Joe has said about Interest rates staying the same, I overpay the repayment before the I/O.

My logic is that if/when the repayment section is paid off ,that frees up much more cash to OP the I/O section. Also, in the event of redundancy for example, the amount you have to pay, each month is less.

I accept that there are arguments against this though.

I think this is how my calculations are working out - the amount I have to pay is less...

Peelerfart

"I think this is how my calculations are working out - the amount I have to pay is less..."

Unless you have a gold plated job or a bucket of money - it is an issue.

I don't have a bucket of money and my career is linked to the steel industry sooo.......

dimbo61

Savings rate will not match your mortgage rate so overpaying is a very good idea.
Now you are paying the interest on the IO part of the mortgage and your EX is paying the endowment so what happens if he stops paying ?
Build up your cash ISA,s and overpay the repayment part first GOOD LUCK