Stoopid question - repayment vs interest only

mekondelta

I'm trying to work out which is better, overpaying on an interest-only mortgage or using a repayment mortgage.

Is there any difference if you bump up the interest-only amount to the same as the repayment mortgage? Are the two mortgages calculated the same way? Somehow it feels nicer to be in control of how much is being paid off the capital with the interest-only mortgage compared to the repayment.

Anyone have any idea?

MarkyMarkD

There's no difference.

Overpaying on an interest-only mortgage to the same extent as the difference between interest-only and repayment is a good way of managing your budget as long as you have discipline, as it gives you flexibility to underpay when you need to without getting behind on the payments your lender actually requires.

InMyDreams

But you also need to make sure you're confident of your maths as it won't be so obvious if you fall behind. You have to know what that difference would be when things change too, keeping your eye on the ball and adjusting payments accordingly (eg when rates change or when you are ahead of yourself or behind with your overpayments) so that you know how far ahead or how far short you are and there are no nasty surprises 10 years down the line. A big advantage of a repayment is that all this is worked out for you. If you're doing the sums and you mess up and leave yourself with a shortfall, you can only blame yourself (or possibly your adviser if anyone advised that you do this).

With more control comes more responsibility. But I agree with MarkyMark, if you're up to the job and happy to accept the full responsibility, it's a good way to budget. If you're worried about your discipline or your maths, steer well away.

maryjane01

some mortgage you can only overpay a certain amount eg. 10%. So if you have a repayment mortgage you could pay off more, as you have the regular capital payments plus 10%, on an interest only you can only pay off 10%. Just something tothink about and I don't know how much you would be planning to pay off over a year. There is also part repayment and part interest only.

MarkyMarkD

Good point, MJ01. But if you are on 2 year deals, for example, you can always pay off lumps of capital every 2 years between deals.