Offset Mortgage part capital payment/part interest only

nearlytherehopefully

Hi, here's the conundrum. I have an offset mortgage that comprises 40% Part Interest & 60% Part Capital. I am looking to reduce the overall term of the mortgage. I currently have 8 years to go with a rate of 3.75%. My lender (as is common) tells me that I have to clear the 40% interest BEFORE I start reducing the Capital section. I am fortunately in the position to have the funds available to match the whole mortgage amount and am currently overpaying my mortgage with a significant amount. Due to the way the offset is working I am getting a good return. QUESTION - should I clear the full amount of the interest only and concentrate on reducing the mortgage term or leave it as it is and just offset the whole amount as I am getting a good return and retain a lump sum for a future date? By quick finger calculus I would reduce the term by 16 months if I clear the interset only part. Thanks!!

sebtomato

I thought the point of offset mortgages was to reduce the whole interest to pay, based on other savings or cash you have. I don't understand how an offset mortgage can be 40% interest and 60% capital.

nearlytherehopefully

Hi, I started off on a repayment only mortgage years ago and through various house moves ended up where I am now with a combined part interest / part capital mortgage. As I've said the actual reduction in term onlu happens AFTER the interest section has been paid. Banks / Building Societies are there to make their money back so its not suprising they want their cut first.

getmore4less

You don't get a good return with offsets you just reduce the debt you owe on a temp basis.

If you are 100% offset then the net debt is zero so unless the funds are only availble to offset on a temp basis your mortgage is effectifly finished )months term if you wanted.

It is now up to you how you mangage the cash flow from offset accounts to the mortgage account. it makes no differnce to the cost tere shouldbe no interests payments. If you set up the mortgage payment to come from one of the offset account it would look after itself.


(also it is not common for lenders to insist you pay off the interest only first)

claire1234

hi there,

sorry to hijack your thread,

sorry for been cheeky would you mind explaining a bit more about your mortgage?

ive got a interest only mortgage, im trying to work out a savings plan to make sure ive got the capital ready for when the term is up,

when im feeling brave i`ll ring them one day to enquire about overpayments,

i was wondering if i was to overpay each month (if allowed) would that lower the monthly interest only payment and save money in run?

any advise?

thanks from claire.

kingstreet

Yes. It will.

Reducing the capital balance on an interest-only mortgage reduces the interest you will pay, normally immediately.

claire1234

thank you so much for your quick reply,

so for example if i overpayed 1k per year that would go towards the capital and the interest only monthly payments would reduce?

i`ll pluck up the courage and ring them one day to check there policy on overpayments,

thank you

kingstreet

Yes.

Why do you need courage? It's a simple request for information they must get several times a day, one would imagine.

claire1234

aah just get a bit anxious about it all

thank you so much for your replies

getmore4less

claire1234

The simple way to work out what you need to pay is to use a simple calculator.

Work out whats left before you have to pay off the debt, thats amount owing and time left, along with the interest rate.

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

That will tell you what your total payment needs to be, if saving are at a lower rate% than the mortgage% it needs to be a bit more.

Check with the lender if they will let you keep the payment the same or set your own payment.

If you put up your numbers someone can giv you a ball park figure of the payment needed

claire1234

getmore4less

thank you for your reply, i`ll have a good look at that site now