Interest Only Mortgage Query

[Deleted User]

megarchie wrote: »

Well I'm not that daft!!!!
I do know that an Interest only mortgage means that I'm paying the interest for 15yrs.
My original payments were about £1000 a year. Four years ago I changed the repayment percentage. I now pay about £1800 per month.In other words I've started paying off some of the capital. Now after 15 yrs at the current rate I would have £99,000 left to pay at the end of the term instead of £200,000+. I could even over the next few years make some overpayments to reduce the £99,000 even further. So far I've only made one overpayment of £100 which is nothing.

So what's the issue? Sorry, maybe I'm the one being thick here but I can't see what the problem is? You're not making yourself clear which is why people here think you're winding them up.

You had a mortgage for £200k, right? But you've said in one paragraph that you've 'changed the repayment percentage' and started overpaying but then in a later paragraph you say you've only made 1 overpayment of £100. Which is right?

If you overpay by £800 every month (which I think is what you're suggesting?) then after 15 years you will have overpaid £144k, so the capital sum will be much lower. In fact, it will be lower than this as the interest you're being charged will be reducing too.

I'm really struggling to see what the problem is here.

[Deleted User]

megarchie wrote: »

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????!!!

Here's your original post. What is the problem?

You seem to be complaining that you've paid £1000 in interest a month (6%) for four years and haven't reduced the balance at all? In which case, we've got every right to be concerned because that is how an interest-only mortgage works at its most basic - which bit of that don't you understand?

You then say that you have overpaid (or are on a repayment mortgage) and only have £99k to repay as it stands, so what are you complaining about?

kai666

megarchie wrote: »

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????!!!

megarchie wrote: »

Well I'm not that daft!!!!
I do know that an Interest only mortgage means that I'm paying the interest for 15yrs.
My original payments were about £1000 a year. Four years ago I changed the repayment percentage. I now pay about £1800 per month.In other words I've started paying off some of the capital. Now after 15 yrs at the current rate I would have £99,000 left to pay at the end of the term instead of £200,000+. I could even over the next few years make some overpayments to reduce the £99,000 even further. So far I've only made one overpayment of £100 which is nothing.

So, lets get this straight...your IO mortgage was for £200,000+ for 15 years, you have paid back £50,000 over 4 years. You have also overpaid by £100, and you owe a further £99,000 instead of the full £200,000+?

Boozer

I think you have bamboozled all of us, any chance you could tell us what you have done and the timescale?

Jan 2006 borrowed £200,000, paid interest only until Feb 2008, increased payment to £1800, that sort of thing, it is too confusing the way you have tried to explain things.

megarchie

I'm sorry if I'm confusing you all. I obviously haven't explained things particularly well though I am not quite the naive simpleton that some of you are intimating in my life in general though obviously I don't know it all financially.

In 2004 we took out an interest only mortgage for 15yrs to the tune of £235,000. We started out with a fixed rate for two yrs of 4.99%(£1000 per month). We then took out a 5yr fixed rate at 5.18% ( a good rate at the time). As our circumstances changed for the better we were in a position to change this mortgage from 100% interest only to part repayment and part interest only. This meant by increasing the payment to approx £1800, by the end of the term the capital due would have dropped to £99,000 ( a substantial drop from £235,000), although this could become less over the term as, if our finances allow, we can make additional payments of up to £500 per month, with our Building Society, to reduce the eventual capital repayment.
My query has always been that I was surprised when we had the meeting to alter the mortgage that the 4 years we had spent on the interest only , amounting to £50,000 in monthly payments was completely down the drain and that it paid no part in the readjustment of the mortgage.
In retrospect would it have been greatly beneficial if we had had part repayment/part interest only from the very beginning no matter how small that repayment part might have been?

getmore4less

megarchie wrote: »

I'm sorry if I'm confusing you all. I obviously haven't explained things particularly well though I am not quite the naive simpleton that some of you are intimating in my life in general though obviously I don't know it all financially.

In 2004 we took out an interest only mortgage for 15yrs to the tune of £235,000. We started out with a fixed rate for two yrs of 4.99%(£1000 per month). We then took out a 5yr fixed rate at 5.18% ( a good rate at the time). As our circumstances changed for the better we were in a position to change this mortgage from 100% interest only to part repayment and part interest only. This meant by increasing the payment to approx £1800, by the end of the term the capital due would have dropped to £99,000 ( a substantial drop from £235,000), although this could become less over the term as, if our finances allow, we can make additional payments of up to £500 per month, with our Building Society, to reduce the eventual capital repayment.
My query has always been that I was surprised when we had the meeting to alter the mortgage that the 4 years we had spent on the interest only , amounting to £50,000 in monthly payments was completely down the drain and that it paid no part in the readjustment of the mortgage.
In retrospect would it have been greatly beneficial if we had had part repayment/part interest only from the very beginning no matter how small that repayment part might have been?

But why would it?

You rented the money,

If you rented a house for 4 years what would you expect to happen?

It was interest only thats what the £50k was, interest.

What do you think should have happened?

I am afraid you may have just made some peoples fears valid.

megarchie

You are right in all you say!

JimmyTheWig

So do you agree that it is right, now, archie?
Basically, if you are only paying the interest then at any point (at the end of 15 years, at the end of two years, whatever) you will owe the same balance as you started with.
Every penny you repay off the capital (u.e. over and above the interest-only portion) is a penny in your pocket at the end of the day. Plus it is a penny less you will be charged interest on. And interest compounds significantly on a 15 year mortgage (even more significantly on a longer term mortgage!) so it really is worth paying off as much as you can as soon as you can.

Yes, if you'd paid money off your mortgage rather than spent it in those first two years then you'd be better off today. If you'd put money in a 6% (net) savings account you'd be even better off.
To a large extent, all it boils down to is the less you spend, the more you've got!!

[Deleted User]

megarchie wrote: »

I'm sorry if I'm confusing you all. I obviously haven't explained things particularly well though I am not quite the naive simpleton that some of you are intimating...as our circumstances changed for the better we were in a position to change this mortgage from 100% interest only to part repayment and part interest only.

Sorry Megarchie if others (and myself) have been critical, but some of the things you have posted are quite alarming, like the above. There's no such thing as a 'part interest-only' mortgage - it's either repayment or interest-only. You can't have 'part repayment' and 'part-interest only'.

The issue seems to be that you haven't understood what 'interest-only' actually means, which is quite worrying.

JimmyTheWig

Deleted_User wrote: »

Sorry Megarchie if others (and myself) have been critical, but some of the things you have posted are quite alarming, like the above. There's no such thing as a 'part interest-only' mortgage - it's either repayment or interest-only. You can't have 'part repayment' and 'part-interest only'.

Sorry to disagree, but I believe this is totally possible.
For example, many people who originally believed their endowment would cover their interest-only mortgage have gone ono this plan so that what there is of their endowment will pay off what is left of the mortgage.