Interest Only Mortgage Query

megarchie

Five years ago my wife and I took out a 15 yr Interest only Mortgage. The mortgage was for £200,000+. After 4 years, however, we were in a posiotion to increase the amount of Capital were paying back and as things stand now we'll have £99,000 to pay back at the end of the mortgage rather than the full £200k+. By paying extra per month, no doubt this final figure will be even less. And now we come to the crunch.......!!!!
When I went to the Building Society to explain that we wished to start paying off some of the capital I was amazed to find out that the £50,000 we had already paid off over the previous 4 years in interest had stood for nothing and that we were virtually then starting from scratch! Surely when we initially took out the mortgage the amount of interest we would need to totally pay off was known otherwise they couldn't have come up with a monthly figure that we had to pay.
Surelyn the £50,000 we had already paid should come into the equation!
What do you think????!!!

ollyshaw

I smell a troll....

rhysvw

Hi hope this helps.

You said you borrowed 200k on interest only the definition would be you borrow 200k over 15 years every month the bank will charge you the interest on the 200k you pay it at the end of the mortgage you still owe 200k. because your only paying the interest charged on the 200k and not any of the capital back.

Now if you paid extra on top of your interest this will come directly of the capital balance of 200k for example if you paid 20k extra over the past few years on top of you monthly interest charge then your mortgage is 180k and you are now only paying interest on 180k every month

if you had the mortgage for 15 years every month you'll pay at the end of the 15 years you still owe 200k and you would have paid them all that money which had no impact on the debt for 15 years.

It sounds to me the mortgage was not explained to you properly.

Some your phrases suggest you may be under the impression you had a capital repayment mortgage.

Even though you paid 50k which i presume you mean your monthly payments over the years amount to 50k that will have no impact on the debt because its interest only.

Thrugelmir

I was amazed to find out that the £50,000 we had already paid off over the previous 4 years in interest had stood for nothing

Interest - The fee charged by a lender to a borrower for the use of borrowed money,

simpywimpy

I had this years ago with A&L. I was overpaying each month on an interest only but when I phoned for an updated figure after a couple of years, they said I still owed the same amount and that the overpayment was held separately and would be used at the end of the term so effectively, I gained nothing so made them send me the money back.

MarkyMarkD

simpy

What you have said is complete rubbish.

Sorry, but it's true.

megarchie

I appreciate your replies!
I am aware that we did not have a capital repayment mortgage!
In simple terms I knew we had to pay the interest only on an Interest Only mortgage.
Let us say that the 15 years of interest mortgage = 100% of the Interest part of the mortgage + the eventual capital.
I was under the belief that after 4 years we had then paid off 4/15ths of the interest and only had another 11/15ths of the interest to pay!!!
It seems to me that as soon as I increased the mortgage payments after 4 years to reduce the capital the whole mortgage started again. The whole scenario seemed that I now had an 11yr mortgage and that the previous 4 years of paying was down the drain.
In simple, simple terms, if I owed you £15 in interest and had paid you £4 pounds of it then I only owe you another £11. Why should I still owe you £15?
Am I still talking rubbish and that there is something I fundamentally don't understand here???

Boozer

Oh dear me, if you borrow 15 from me and pay me 4, and you only owe me 11, why on earth would i do that?? i did not make any money from it.

Thrugelmir

megarchie wrote: »

I was under the belief that after 4 years we had then paid off 4/15ths of the interest and only had another 11/15ths of the interest to pay!!!

Why? You still owed the original capital balance.

As you correctly say paying interest is money down the drain.

If I lent you £200,000 at an interest rate of 5% per annum over 15 years. Then the annual interest charge would be £10,000, or £150,000 over 15 years. At the end of 15 years you still owe me the £200,000 so will continue to pay interest.

Seems advisable to prepare a budget for your finances and see what you can afford in monthly repayments. Then reschedule your mortgage over this term on a repayment basis.

kai666

i'm on an interest only mortgage. When you over pay, it doesn't reduce the borrowing length, it reduces the amount (interest) you pay each month over the said time. In your case 15 years. If you have been over paying, surely you noticed the monthly payments going down? And they should have written after each over payment to confirm the remaining figure and the new monthly payment

VIGILANT22

Oh dear it's really "worrying" the "understanding" around interest only mortgages.