repayment vs. interest only? Is one cheaper if interest identical?

ellie3009_2

I am trying to figure out what is the best option for me, repayment, or interesting only plus as much extra as I can afford to repay.

Hypothetically, assume I had 2 mortgages, both with identical fees, and identical interest rate of 4% over 3 years, but one is interest only (with unlimited capital repayments) and one is normal repayment.

Lets say the interest only mortgage works out at £350 per month.
The repayment charges are £650 per month.

If I took the interest only, and paid the £350 interest, but also an extra £300 monthly to equal the £650 on the repayment mortgage, would the balance reduce on the two mortgages in an identical way? (since I’d be paying £650 on both, with identical interest rate.)

To me it seems logical that they would, but I’m not sure if there is something that I am unaware of… can anyone clarify for me?

Currently I can afford repayment, but I am considering travelling in about a year, and I would have no income during that time, so it would be better for that period to have lower payments plus whatever extra I can afford. However, I don’t want interest only if there is some kind of “trap” with the extra repayments that I am not aware of!

Can anyone shed some light for me?
Thanks so much,
Ellie

beecher2

You may not be allowed to take out an interest only mortgage without a repayment vehicle in place. Telling them you'll overpay each month probably won't be enough.

Thrugelmir

Depending on when the overpayments hit the account will make a difference. As interest is charged on a daily basis.

ellie3009_2

Ah, I hadn't thought about WHEN the payments were made, thanks for that.

what would count as a repayment vehicle?
I have an ISA... would that count?