Best way to repay an IO mortgage on low income

Brookfield16

Hi

First ever post so sorry for the ramble which I have tried to shorten...!

Ex husband maxed my credit cards and left - I couldn't repay. I had to use a broker to obtain an IO mortgage as mainstream banks would not touch me and I couldn't afford a C&R. Rate 9.8% when everyone else around 4.5% (June 08) just before market crash! Amazingly I discovered I was on a reversionary mortgage so after 3 years the rate became 0.5%. I was much better off but wasn't allowed to repay extra. After 4 years I was told I could pay whatever amount over and above the minimum interest payment so Since Sept 12 I have been overpaying. Have just checked the mortgage term with the lender and was advised term does not reduce regardless of how much overpaid (unless settling in full) although the interest would reduce marginally each month.

Reversionary interest payment (August 12) without any overpayment based on £143,000 = £468.34 per month. I began overpaying in September 2012, increasing when I could and now pay £850 in total. (Still £167.00 short of what they advise I should pay to settle in full by 22.8.28).

Mortgage settlement figure at Feb 13 was £140,750 with
Interest payment of £464.02

Mortgage settlement figure at July 13 is £138,949.90 with interest payment in July 13: £458.91

So, could someone advise whether I am better to keep paying by this method or should I put my money into a savings plan instead and settle at the end? I know savings rates are really poor and maths is simply not a strong point - to be honest I just get confused by bank blurb but feel I should at least try to find out if I could do more...

Apologies again for the detail and thanks in advance for any assistance.

Let_Us_See

Brookfield16 wrote: »

Amazingly I discovered I was on a reversionary mortgage so after 3 years the rate became 0.5%.

For your sake I hope this rate of interest is correct. However, I suspect 0.50% is an error and request you to re-check as it will affect the advice you are seeking.

SG27

If it is 0.5% interest then save the money preferably in an ISA. As long as the savings rate is above the mortgage rate it's better to save.

Brookfield16

Hi

Sorry for the confusion I may have caused. My mortgage is based on the Barclays Bank rate (0.5%) plus 3.44% so 3.94% in total - told you maths wasn't a strong point.

So, is an ISA still the best bet rather than paying off the mortgage by overpayment as at present?

I really am grateful for your replies.

dimbo61

You need to have some emergency savings ( New boiler, car breakdown etc) but after that over pay the mortgage by whatever you can afford each month.
You will not earn 3.94% from any Cash ISA at the moment

Thrugelmir

Continue paying down the mortgage. While thinking about the longer term. As interest rates may well rise. So the shortfall may well grow even larger. Have a contingency plan in place.