Pay off interest free part of mortgage or repayment?

katewatt

Hi
can anyone help? I have £196k mortgage. £81k is on interest only and £195k on repayment (current rate of interest is 2.79%)

I have £5k that I want to use to pay off part of my mortgage - is it better to pay off the interest only part or the repayment part???

Confused.commmmmm:

JSR

Assuming interest rate is and always will be the same for both I'd pay off the interest only. Your repayment will definitely be repaid eventually but your plan to repay the i/o might not work out. This will give you a buffer.

Gorgeous_George

I'd save the £5k until mortgage rates rise.

However, if you want to repay, it makes no difference if the rates are the same.

GG

DVardysShadow

Put it against the interest only part of the loan. That would mean that there will be less to pay off at the end. And while you are about it, this will reduce your monthly payment by £10/month. Consider changing some more of your interest only to repayment to keep the monthly payments the same. At a rough guess, you could convert another £5000 to repayment, assuming 25 years to go

theduke2011

The idea of taking any interest only mortgage is to put in place a suitable 'repayment vehicle' in order for you to pay the interest only element back to the lender at the end of the mortgage term. For example, your may wish to invest in an endowment policy, investment isa etc etc. If you don't have anything in place (your mortgage provider should've checked this with you) then might want to consider seeking independent financial advice to discuss putting a repayment vehicle in place. Alternatively (as mentioned above) you could look to covert the whole mortgage to Capital Repayment, which would ensure the mortgage balance is paid off in full at the end of the term.