Interest only - make overpayments or change to repayment?

heathy_2

Advice needed please - currently on 5 year fixed rate NR together mortgage (which is due to end Dec 2011) paying interest only. Just been awarded a promotion with a £200 per month payrise and want to put this towards my mortgage. Wondering whether to stay on interest only and make overpayments or whether to swap to repayment. Not sure which would be the best option to reduce the balance - if I stay on interest only will any overpayments come off the balabce? So many questions, therefore any advice would be gratefully appreciated!

getmore4less

what rate is the mortgage.

Overpay if you go repayment then you are commited to the higher payment with no way back.

heathy_2

5.89% currently until Dec 2011

getmore4less

heathy wrote: »

5.89% currently until Dec 2011

Overpay then nothing out there will better that rate.

Rikki

Overpay. Your reducing the total amount you owe and then bringing down the monthly payments. So if you keep your payments the same you are bringing it down quicker.

On an interest only mortgage you can overpay any amount each year. A repayment mortgage you can only overpay by a certain percentage.
My repayment portion of my mortgage is 10% of outstanding balance per year.

shortchanged_2

Are you already putting money aside for your interest only mortgage? Do you have a financial plan to pay off the capital at the end of the term?

heathy_2

No financial plan in place I'm afraid.

Also, as it's a NR together mortgage would making overpayments reduce the balace of the mortgage part or the loan part of my debt with them?

shortchanged_2

heathy wrote: »

No financial plan in place I'm afraid.

Also, as it's a NR together mortgage would making overpayments reduce the balace of the mortgage part or the loan part of my debt with them?

So how/why did you take out an interest only mortgage when you have no credible plan to pay off the capital?

If it's time for you to remortgage you may well find that any lender will try to push you towards a repayment mortgage in the current climate. Particularly as you will have no evidence of any repayment plan.

heathy_2

Not looking to remortgage next year, under no illusions that wouldn't get another deal currently so will stay with NR on SVR (and will be looking at putting that saving towards the mortgage as we're used to paying at 5.89% now).

Just wondering whether to stay on interest only and make overpayments or whether to change to repayment.

Rikki

heathy wrote: »

Not looking to remortgage next year, under no illusions that wouldn't get another deal currently so will stay with NR on SVR (and will be looking at putting that saving towards the mortgage as we're used to paying at 5.89% now).

Just wondering whether to stay on interest only and make overpayments or whether to change to repayment.

My concern with not having a repayment vehicle in place is in the event of the death of you or your partner.
Do you both have life insurance?
Could the surviving partner meet the repayments?
Could they save enough to pay off the mortgage at term?

getmore4less

heathy wrote: »

Not looking to remortgage next year, under no illusions that wouldn't get another deal currently so will stay with NR on SVR (and will be looking at putting that saving towards the mortgage as we're used to paying at 5.89% now).

Just wondering whether to stay on interest only and make overpayments or whether to change to repayment.

Don't change to repayment it commits you to a higher payment, just overpay.

The issue you will probably have is LTV on the mortgage and the extra loan.

Depends on the numbers of each but untill you have LTV below at least 90% you won't be able to change lenders anyway.

If you still have the loan, normaly that stays with NR and the rate goes up if you do change lender so clearing those first normaly

Chances are you have overstretched but future income increases can resolve this to get to a point you can sell/move/change lender

I would probably overpay the loan first but there may be circumstances where this is not the best option.


Check your Overpayment limits
What is the followon rate?