Interest on top of interest only mortgage

ihategossips

Can anyone shed some light on this. I have spoken to my lender and I'm still no clearer.

I have a interest only mortgage. I have been in arrears over the years and have overpayed each month to clear the arrears. I have gone through my statements now my arrears are cleared and have noticed that the balance on my mortgage has gone up by around 10k. When I saw the statements before with Interest amounts, I assumed this was the amount of interest charged as rates vary and this was what my payments were being put towards.. it turns out it's just interest they have been adding over the years..as much as 41/2k per year for no apparent reason. I asked my Mortgage Provider and they have just said it's interest and arrears but I don't have any arrears as I've paid them off so why has't this been deducted from the balance owing and couldn't say what the interest was for....

I'm really confused as to why I'm paying additional interest on top of my interest payments.. is this right... It means I owe more now than I did the day I got the mortgage..

Any advise please

Thrugelmir

You have an only interest only mortgage. So none of your repayment goes towards reducing the capital balance owed.

If you initially owed £10,000. Then built up arrears of £1,000.

Although you might repay £50 extra in a month. The lender will still charge interest on owing £10,950 not the original £10,000. Effectively interest on interest is charged.

The arrears themselves are not "free" money. That can be paid back at leisure.

So you need to work out if you ever going to get the situation under control.

getmore4less

If you don't pay the interest it gets added to the debt and the next interest payment goes up.

Most mortgages compound monthly.

When you catch up you have to py more than just the missed payments.

eg :

£120k @ 4% would be £400 month interest so £4800 for the year

If you failed to pay that then by the end of year you would owe more than £124800 it would be more like £124900.

kingstreet

Did the lender ever offer to capitalise the arrears?

ihategossips

They did once yes for just under 3k which I accounted for but I've checked back from before I missed payments and they added it then also a few months after the mortgage was initial put in place...

somethingcorporate

But after you started missing payments?

It sounds like capitalised arrears. How much is your normal monthly payment now? Higher than when you first started?

ihategossips

no, interest charge was put on the statement within a month of the mortgage. I'm not sure if the Total Charges and Total payments are offset against each other in which case they have not listed the interest I'm being charged just the balance going up....

kingstreet

TBH without the full story, a timeline and a copy of the statement(s) this sounds like something it's going to be impossible to do on here.