Interest only or repayment?

Thrupnybit

We have about £33k left on mortgage ending in May 2019. £1K is repayment and remaining £32K is interest only. OH has policy maturing in 2017, target £23K, likely to be c £17K. Mortgage is 2.5%, unfixed so no penalties for overpayment and we consistently overpay around £220 per month as well as some lump sum payments and I may change job, reducing income. Could clear the lot but likely to need cash for other purposes.

My question is, once we get the mortgage to £32K (in the next couple of months) are we better to leave as is and continue overpaying or should we change to a repayment?

From using the calculators on this site, repayment mortgage on 6 year term would push up repayments quite bit beyond what we currently pay (don't really want to do that) but by 2017, we'd be well below the £17K. that should be covered by the endowment.

Any ideas?

Thrugelmir

There's no harm in clearing the debt early. If you've no need for the cash for other purposes. The endowment would then provide a lump sum with which you can do as you wish.

Gizmo247

My advice would be to stay as you are and manage your payments yourself. You seem to have a grip on the monetary side so initially aim to clear the debt when the policy matures.

If you move to repayment there may be costs involved and the repayment amount will be calculated with no regard to future maturing assets/policies. Managing it yourself with a slant towards low risk will allow you to balance overpayments, savings and cope this unforeseen issues that pop up from time to time.

I would recommend creating spreadsheet with a row for each month left on the mortgage and use the financial spreadsheet functions to calculate your overpayments, interest and savings. If you allow the spreadsheet to have a different interest rate per month too then you can run a number of What If's to see when you become mortgage free. i.e. What if the interest rate increases?, What if there is redundancy?, What if the policy return is worse than expected?

You can then enter the true month information when it becomes available and review where you are compared to your target on a regular basis.

davenport151

I am in quite a similar situation to you in regards to amount and endowment choices which we are just about to consider. There is one more option.
Why not transfer just another £10,000 to repayment or even half the outstanding amount?
You are probably already covered by your overpayments. Plus its a guaranteed rather than a 'should.'

Thrupnybit

Thanks for the replies, Hadn't factored in that we could resort to the amount already overpaid if necessary. I will check with bank if there is a charge for restructuring mortgage - I think they did levy a smallish charge a few years ago.

Spreadsheet functions - is there a particular function in Excel I could use for these calculations? Not too familiar with the more sophisticated aspects of Excel.