Mortgage overpayment decision

TrickyDicky101

You don't want to encash the endowment early. You want to keep your standard monthly payments to the bank the same, no matter which balance you overpay on. Your standard monthly payments will thus pay off a greater capital element moving forwards, thus reducing your outstanding loan balance even further. Since you have had however many years of only paying off the interest on the interest-only balance, unless your overpayments will amount to a significant proportion of the outstanding balance, there is no likelihood of your overpayments reducing the term on the interest-only portion (it would do on the capital repayment balance as you have been paying off capital since the beginning).

Watermouse

Hi
I am a newbie, so not sure whether I should start a new post? I came onto the site with a similar query. I am in a position to overpay a little each month at least for the foreseeable future, and have Repayment and Interest-only parts to my mortgage, which runs to end of 2017. The endowment proceeds have been invested and are wrapped up for 4 years, but are unlikely to cover the whole of the interest only amount. Interest rates are the same on both parts. There would be a penalty to switch mortgage. Should I concentrate on reducing the interest only amount, or chip away at both? I keep getting very confused, so would welcome suggestions. Thank you.

Watermouse

oops - just seen a rule that says I may not post new threads - sorry. I will look through the site for more information first.

TrickyDicky101

In general, if the terms are the same and the interest rate applied is the same, the final outcome will be identical no matter which you choose to overpay (interest-only or capital repayment).

Yorkie1

TrickyDicky101 wrote: »

In general, if the terms are the same and the interest rate applied is the same, the final outcome will be identical no matter which you choose to overpay (interest-only or capital repayment).

I take your point. Thinking laterally, though, the repayment part will take care of itself if you simply keep paying. One might have more peace of mind by knowing that any endowment shortfall is less important by having repaid part of the interest only element in advance?

Thrugelmir

If both components are at the same rate of interest. Then the decision needs to be based on your medium term financial position.

On the basis that you have adequate cash reserves for an emergency situation. Redundancy , long term sickness etc. Then reducing the interest only element should be your preferred option.

However if you would like the flexibility of reducing your outgoings at some point in the future. Then reducing the repayment element of your mortgage makes more sense.

Personally I would opt for the first option. As the endowment paying more than is required would be a useful bonus.