Interest only and overpayments

stacey_appleby27

Hey everyone,

I have recently posted and the advice was excellent. I am not really that good with understanding mortgages.

Anyway my situation is £111000 mortgage and on interest only (4%), pay £372 ish per month.

I have now set up a standing order to overpay by £1000 a month as now in a position to save this much and loads of people were saying overpay rather than save.

So my question is...while I am continuing to pay £372 a month interest is the overpayment reducing my balance?

So last month I over paid by a £1000 so is my balance now £110000? I ask this because a few web sites say I need to be careful as on interest only and need to be accurate with what date I make the over payment? Its totally lost me?

Thanks in advance for your help xx

CLAPTON

assuming you are allowed to make overpayments then yes they will reduce the balance by those amounts

stacey_appleby27

Yeah they said as I am on standard variable I can overpay as much as I like.

originalmiscellany

That sounds like you're doing well appleby. I'd ring the bank to check what your mortgage is down to, but if you can afford 1k a month, your mortgage will really start to shrink before your very eyes

stacey_appleby27

Now I am more confused. I have just rang RBS and my balance on the 13th March was £111039.00, I have made my usual interest only payment of £372 and an addition overpayment of £1000 on the 1st April. My balance as of today 15th April is £110386.19? Should it not be £110039?

I have also asked how interest is calculated at its daily but applied monthly on the 9th?

Someone please help me :-(

tina01904

Hi Stacey

I'm also on an interest only mortgage and I overpay in lump sums. When I make an overpayment I ask them to reduce my monthly payments.

I started with 108k and have steadily made overpayments over the years and the mortgage is now 81k. My statements reflect the overpayments and the monthly payments have reduced as I overpay so it does work.

Good luck, I hope you get it sorted!

dimbo61

It may take a few months before you see a pattern of overpayments and how they are taken off the balance.
I would also ask that you keep your mortgage payment static ( ie pay the same amount each month )
That way you not only overpay by £1000 each month but also save interest on the interest

newgirly

I am with the chelsea on IO and overpay, they said that they keep the interest payment the same for 12 months rather than adjust the figure each month, after that time it is re-calculated to reflect the new balance. So you are overpaying a tiny bit in interest every month as well, which knocks more off the balance as well.