Advice needed on Interest Only Mortgage and Overpayment

originalmiscellany

These are made up figures by the way...

So overpaying on interest only =

hypothetically, you have an interest only mortgage payment of £200 a month. You pay £200 a month for a year and at the end you still owe the bank the same amount of money as you did 12 months ago.

Overpaying on repayment =
hypothetically, you have an repayment mortgage payment of £400 a month. You pay £200 a month on the interest and £200 off the capital for a year and at the end you owe the bank 2.4k less of money as you did 12 months ago.


Overpaying on repayment means you will pay more on top of what you are paying back to the bank, so if you are paying a mortgage of £400 a month for 30 years, at the end of that you will have cleared it whether or not you make over payments - if you do you will simply speed the process up no end.

Wikikenkey

Thanks. I wasn't sure if overpaying on a interest only mortgage would only reduce the interest or if it would help in reducing the capital as well.

ViolaLass

Wikikenkey wrote: »

Thanks. I wasn't sure if overpaying on a interest only mortgage would only reduce the interest or if it would help in reducing the capital as well.

They mean the same thing. By reducing the capital owed, you will be charged less interest in future.