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Interest Only Mortgage and Overpayments
wildcherry
Posts: 151 Forumite
Can someone please help me out with this conundrum?
My partner and I were discussing his mortgage today. Its an interest only and he makes an annual overpayment which he believes is paying off the interest AND the capital.
I explained that as its an interest only mortgage its only paying off the interest and he will have to find the capital amount at the end of the term.
It isn't strictly a problem as he has other property etc which would pay off the capital but I would like to know whose understanding was correct!
My partner and I were discussing his mortgage today. Its an interest only and he makes an annual overpayment which he believes is paying off the interest AND the capital.
I explained that as its an interest only mortgage its only paying off the interest and he will have to find the capital amount at the end of the term.
It isn't strictly a problem as he has other property etc which would pay off the capital but I would like to know whose understanding was correct!
On target for mortgage freedom September 2023
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Comments
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If he's making an annual overpayment then it's paying off the capital as well. He would be better off overpaying weekly/monthly as most mortgages have interest calculated daily.wildcherry wrote: »Can someone please help me out with this conundrum?
My partner and I were discussing his mortgage today. Its an interest only and he makes an annual overpayment which he believes is paying off the interest AND the capital.
I explained that as its an interest only mortgage its only paying off the interest and he will have to find the capital amount at the end of the term.
It isn't strictly a problem as he has other property etc which would pay off the capital but I would like to know whose understanding was correct!
However, if the interest rate is very low he'll be better of not making any overpayments at all and investing the money in a savings account making more in interest than he is paying.:footie:
Regular savers earn 6% interest (HSBC, First Direct, M&S) Loans cost 2.9% per year (Nationwide) = FREE money. 0
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