Interest only mortgage - opinions pls!

vickypink

Timmne wrote: »

(do you like my new signature?)

ooh i do! I might change mine to "I work for Tesco....and yes, I EVEN stack shelves"

Back on topic, is does an IO mean lower repayments compared to a normal one, so you can afford to over pay? Have I got that right? Im not very clued up on them!!

Also don't be mean about your gf.......

toonfish

Timmne wrote: »

The reason I don't want to overpay on a repayment mortgage is because the weighting on the interest is much higher on a RP - around 80% of the repayments apparently.

If I did the interest only option only 50% of the payment would be interest meaning I'm paying off at a much higher rate....

The interest element would be the same either way - if you borrow £100,000 you will pay the same interest on that whether it is a repayment or interest only mortgage in the first month. Overpaying a repayment mortgage is doing the same as you are suggesting.

HelpWhereIcan

Timmne, as toonfish says - not strictly true, I'm afraid.

Any overpayment will reduce the balance on which interest is being charged - especially on a mortgage with daily interest - there is no front loading of interest on a mortgage.

Use a mortgage calculator to look at the figures - they may differ slightly depending on the calculator you use, but the principle remains the same.

Using the one I have:

A 125k mortgage over 25 years would be 572.92 on Interest only and 767.61 Repayment pm (assuming an interest rate of 5.5%).

If you pay a total of £900 pm:

The repayment mortgage is paid off after 18 years and 7 months

The interest Only mortgage is paid off after 19 years and 2 months

The repayment mortgage is repaid 7 months earlier, saving 7 months interest in theory. Practice may be slightly different, but there would probably be no advantage in setting up your mortgage on interest only other than it gives you a lower contractual payment which you could always revert to if times got tough.

Timmne

Cheers for that chaps, much appreciated!

I suppose the best way to do it then would be dependent on how many bonuses/extra chunks of money we could lay our hands on....

I have a headache - I hate (don't understand) mortgages!

Silvafox

I've looked into this before but the lenders I've been with will charge you for overpaying on an interest only mortgage, also the one I have now only allows a maximum amount of overpayment per year too - only about £2000 if I recall.