Overpay NRAM Interest only mortgage?

hot_saver

I have 20yrs remaining on an interest only mortgage with Northern Rock Asset Management.
In addition I have an unsecured repayment loan with them.

I am unable to re-mortgage with any lender as I no longer fulfil their lending criterias. ( although monthly funding is not a problem ).

My objective is to pay off my mortgage by the time I retire ( 20yrs) - including the capital £160K. - by whatever means are best.

I have a few questions I need help with please:

Is it possible to change to a re-payment mortgage with NRAM without having to provide any proof of income / credit checks?
I believe that I cant extend the term as I will be over 70 in 20yrs.

If I cant change to a re-payment - Can I overpay the interest only mortgage and repay early? say 15yrs not 20? and if so will I be called upon to re-pay the capital £160K early too....ie at the 15yrs point??
OR - when I have paid off the interest in 15yrs time, will I have the remaining 5yrs to find the capital??

OR - would it be better to simply 'save' the £160k over the next 20yrs and continue as I am?

All help / advise gratefully received.

Thrugelmir

NRAM will accept unlimited overpayments on interest only mortgages. Unlikely you achieve a better rate on your savings elsewhere. So overpayments are best. No temptation to spend the money either.

There is no need to change mortgage term or switch to repayment.

By doing so you allow yourself flexibility if your circumstances were to change.

In time you may be able to remortgage to another lender at a better rate.

Also suggest you clear your unsecured loan first.

Suggest you join the Mortgage Free Wannabe board. Plenty of advice and support on there. Many other people are in the same boat as yourself.

Go for it!

hot_saver

Thanks for the advise - really appreciate it.......

last quick question............

Assuming the worst - that my circumstances dont improve in the next 20yrs......and I cant ever re-mortgage again.

If I overpay my unsecured loan & pay it off , then eventually start overpaying my interest only mortgage and pay it off early - say 15yrs not original 20yrs term......and continue to overpay each month during the remaining 5yrs of the term will this go to reduce the capital? and in any case would I be allowed to take the full 20yrs term to 'find' the money to repay the capital?

basscadette

You don't pay 20 years of interest if that's what you're thinking. You only pay interest on how much you owe, usually on a daily basis. It isn't the same as a front-loaded personal loan.

So ANYTHING you overpay pays off part of the capital. As an example, you owe £60000 today on an interest only mortgage. If you give them £10k tonight, the whole lot comes off your balance and you owe £50000. You will then only pay interest on £50k instead of £60k.

In effect, by overpaying, you are turning it into a repayment mortgage without going through the formalities and can drop back to interest only whenever you need to financially - except the repayments will be less as you will owe less interest as your mortgage will be less.

You don't continue to pay once the mortgage has ended as you won't owe anything.....

hot_saver

Im sorry - but I dont understand........

I have an interest only mortgage and if I pay the standard monthly charges in 20yrs I will have paid the all the interest and still owe the 160K capital.

If I overpay the mortgage and pay alll the interest off in 15yrs and not 20 - how am I paying the capital too???

forgive my mis understanding - please advise ( in simple terms )

many , many thanks

basscadette

Capital = £160,000 NRAM SVR = 4.79%
Monthly interest payment = Roughly £639

Pay £1000 per month = £639 interest, £361 Capital

Mortgage next month = £159639

Interest due next month = £637.23 and so on and so on until the mortgage is paid off.

That's why you overpay - to reduce your mortgage term and pay off your mortgage early. You r overpayments come off the capital - they don't work out that over 20 years you owe £153000 in interest and divide it up over the term and you have to pay the whole lot. You only pay on what you owe and like I said, that is usually calculated daily. Pay off a pound today and tomorrow you won't pay interest on that pound - let alone for the next 20 years.

If you don't overpay, you are right, you will owe the full balance at the end and have paid 20 years worth of interest.

hot_saver

Ive thought it through - are you saying that All / ANY overpayments are used to reduce my £160K capital ( and not - as I believed, used to simply re-pay all the interest first ) ?

Is this correct?

If I overpay my interest only mortgage, I am reducing the capital owed and therefore the interest owed on it also, so after overpaying for X yrs, I will have cleared not only the interest but the capital also.


If this is the case - how do I find out how much I need to overpay in order to pay the capital and interest within the 20yr term?

Thanks again for your help

basscadette

hot_saver wrote: »

Ive thought it through - are you saying that All / ANY overpayments are used to reduce my £160K capital ( and not - as I believed, used to simply re-pay all the interest first ) ?

Is this correct?

If I overpay my interest only mortgage, I am reducing the capital owed and therefore the interest owed on it also, so after overpaying for X yrs, I will have cleared not only the interest but the capital also.


If this is the case - how do I find out how much I need to overpay in order to pay the capital and interest within the 20yr term?

Thanks again for your help

That is exactly the case - you have understood correctly.

The best way to work it out is a spreadsheet if you're any good at them. If not - I may be feeling kind enough to modify mine withyour figures in...

There is one sticking point though - you are on a variable rate..... this could change which would change your ratio of interest/capital repayment.

hot_saver

I understand - thank you so, so much for your help / advise.

I really appreciate it.

Joe_Bloggs

160K repayment mortgage at 4.78% for 20 years is 1037 per month
For the first month this is made up of 637 interest, plus 400 capital. The next month the 1037 splits into 636 interest, plus 401 capital.
J_B.

getmore4less

http://www.whatsthecost.com/mortgage.aspx

Stick your number in the calculator

Amount owing (mortgage and loan)
Interest rate
term

set to repayment->calculate.

Make you pay at least that(includes current interest) every month or more and the mortgage should be paid of by the end of the term.

Adjust every time the interest rate changes.