Paid to repayment not interest only -problem?

Iona_Penny

In August we paid £15000 off mortgage from maturing endowment. At the time we had £20000 on interest only and £59000 on repayment; the money was to come off the former leaving only £5000 as interest only.
When I checked the money had been paid from the repayment part. I was reassured it didn't make much difference overall (we are now overpaying by £150 per month, but read an article in yesterdays Mail about a couple who had trouble with similar situation who might have been left with £32000 at end of term.
Was already waiting to here back from BS but now feel I need to press them to sort it out (it was their error) Advice please.

Cara79

Iona_Penny wrote:

In August we paid £15000 off mortgage from maturing endowment. At the time we had £20000 on interest only and £59000 on repayment; the money was to come off the former leaving only £5000 as interest only.
When I checked the money had been paid from the repayment part. I was reassured it didn't make much difference overall (we are now overpaying by £150 per month, but read an article in yesterdays Mail about a couple who had trouble with similar situation who might have been left with £32000 at end of term.
Was already waiting to here back from BS but now feel I need to press them to sort it out (it was their error) Advice please.

Hi
Just came across this and wondered how you got on with this?
I would have thought it would have made a difference but couldn't be totally sure.
Cara

InMyDreams

exept it was my fault, so can't complain. Anyway, FWIW, this is my experience and understanding...

If you pay capital off a repayment mortgage, you have the choice of reducing term or reducing monthly repayments. This forum prefers reducing the term as you reach mortgage-free status sooner and ultimately pay less interest over the remaining term.

If you pay capital off an interest only mortgage, the term is irrelevant (as each month all you are doing is clearing the interest and the amount you are in debt remains the same) so the monthly payment will simply go down as you are paying interest on a smaller amount. Ie, reducing the term is in no way connected to how much you owe, so overpaying won't change it.

We have part and part, and I chose to pay off the repayment part so that I could keep the overall payments the same and pay off the mortgage quicker (like you, by essentially now overpaying each month). I was then amazed by quite how many months (over two years) I had knocked off and felt very pleased with myself. Until I realizied that the reason it had reduced so dramatically was that only a third of the mortgage was being factored in for the calculation, so my overpayment was a reasonable proportion of that. Unfortunately the change in term covers the *whole* mortgage, which means that now I have to find the other two thirds (that has no repayment vehicle in place yet except for overpayments) two years faster than I had initially anticipated. Oops.

I'm hoping however, that this won't be a problem, as a) when we come to re-mortgage, we can simply renegotiate the term and b) even if we can't, I won't make the same mistake with future over-payments, and we still have 18 years to get back on track anyway.

I wonder whether the couple you read about in the paper had a repayment vehicle set to mature in time for the original end date, but having now brought that date forward, it would not mature in time. I guess that would be a big problem.

Hope that helps,
IMD.