Interest-only v repayment

MobileSaver

I really want to switch to an offset mortgage but for a variety of reasons I simply don't have the time or the inclination right now to go through the whole process.

So as a stop-gap I'm sticking with my current provider but changing my existing SVR interest-only to a flexible tracker that will allow me to make unlimited over-payments. The main reason for going down this route is that they've made it so easy for me - all I have to do is sign a piece of paper and return it.

However the agreement that arrived the other day still refers to an interest-only deal when I'd assumed it would be repayment. So the question is, does it actually make much difference to keep it as interest-only considering I'll be making regular overpayments anyway or should I go back and request a repayment flexible tracker?

PoorDave

Could you use a mortgage calculator to figure out what the comparable repayment monthly cost would be, and make sure you overpay by that much, less the interest you're already paying?

Then you'd effectively be paying the same amount as the full repayment equivalent, i think. Any overpayments above that are your call.

MobileSaver

PoorDave wrote:

Then you'd effectively be paying the same amount as the full repayment equivalent, i think. Any overpayments above that are your call.

That's what I was thinking but I wan't sure if I'd missed something or if for some reason I'd end up paying more interest than a "proper" repayment plan.

And I know this is probably a stupid question and should be obvious but I can't for the life of me see the answer in black and white anywhere in the documentation I have:

Say my mortgage is £100,000 and my interest-only payment is £400 and in the first month I overpay by £1000 (so total payment is £1400) then does that mean I now only owe £99,000 on my mortgage? Is it that simple?

nrsql

It should be.
You have to make sure it is paid as a capital repayment otherwise it may end up in another account paying very little interest. You should get a letter back stating you have made a capital repayment and giving the new monthly interest payment (which should be less than £400).

Also check when the payment will be applied - no point in paying early if it's not applied until the end of the month or year.

You are probably better off doing this than having an offset mortgage which tend to have high rates for the flexibility.