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moments_of_sanity

My DH Mum's house has had an offer on which if we accept would leave us with a £19,000 mortgage. The mortgage company have recently reduced this to an interest only payment (we wanted to do this because we knew the house would sell eventually), the interest only payment for £19k would be £88 per month and we have a fixed rate until 2017!

We want to reduce this amount (obviously) before the term finishes in 16 years time but my question is how best are we to pay this off as we want to make payments of £200 per month but until the fixed term comes off we will incure penalties.

Do we pay off £1,200 per year and reduce the interest payments or do we save the extra and pay it off at the end of the fixed rate term?

In a quandry here, so any advice welcome :beer:

dimbo61

Sorry this post is so confusing to me that I hope others can understand it!
You have a mortgage on a property for £19,000 with a lender!
Its on interest only ( why) and will be fixed for 6 years (why) when you want to sell ?
What interest rate will you be paying ? are you better building up savings in cash ISA,s until the 6 years are up and then clearing the mortgage? rather than pay any ERC,s !
What can you afford and do you want the mortgage cleared early saving interest?

moments_of_sanity

dimbo61 wrote: »

Sorry this post is so confusing to me that I hope others can understand it!
You have a mortgage on a property for £19,000 with a lender!
Its on interest only ( why) and will be fixed for 6 years (why) when you want to sell ?
What interest rate will you be paying ? are you better building up savings in cash ISA,s until the 6 years are up and then clearing the mortgage? rather than pay any ERC,s !
What can you afford and do you want the mortgage cleared early saving interest?

Sorry that was confusing - I will try english this time!

Our house currently has a £97k mortgage on it, interest only at £499 per month. Hubby is selling his Mum's house and this will mean we can reduce our mortgage down to £19k. Because it is on interest only we have decided to keep it as this and make additional payments s we can eventually pay off the remaining £19k. On our existing mortgage we are tied in for another few years and will pay a penalty of £2,400 to reduce it by £80k.

Hope that's a bit clearer???

Lois_E

The answer to your question depends on how big the penalties are, and how much interest you can earn on the money while you are saving it up. Without that information, it's impossible to say.

If you know how to do spreadsheets, then set one up, try the different possible strategies, and see what it tells you. If you can't do spreadsheets, then post as much info as possible here - especially the rules about penalties, the interest rate you are paying, and the interest rates available on any savings accounts you are planning to put your £200 chunks into. Then one of us can give you some answers.

Oh, and welcome to MFW, by the way. :wave: We're a friendly bunch. Pull up a chair, sit down and join the conversation.

adwat

Hi MoS

The easiest thing to do would be to make monthly overpayments of £19,000/16/12=£100 per month.
(Which is what you suggest in your OP) Regardless of interest rates I'd suggest you make the extra monthly payments rather than save the money and earn interest on it - you'll be paying tax on that interest, but the biggest problem is the temptation to dip into it and spend some of it before end of the mortgage term. Best of luck with your repayment plans!

moments_of_sanity

adwat wrote: »

Hi MoS

The easiest thing to do would be to make monthly overpayments of £19,000/16/12=£100 per month.
(Which is what you suggest in your OP) Regardless of interest rates I'd suggest you make the extra monthly payments rather than save the money and earn interest on it - you'll be paying tax on that interest, but the biggest problem is the temptation to dip into it and spend some of it before end of the mortgage term. Best of luck with your repayment plans!

Thank you for your reply, I will certainly be making the £100 per month :j