Natwest Interest only mortgage - overpayments

JReacher1

Hi

I have an interest only mortgage with natwest which is now on the SVR as the fixed term expired. I pay £350 a month.

There is not much collaterol in the house as I bought at the wrong time on a 100% mortgage. I will therefore not get a decent repayment mortgage rate.

I can make overpayments on my mortgage so I have agreed with Natwest to make a £250 overpayment every month.

I believe this means I should be paying £250 capital off each month, however someone at work believe it may mean I am just paying off the interest quicker and this will reduce my term but not affect the capital.

I was wondering if anyone knew if my friend was right as I was assuming the overpayment would be going straight off the capital!

Cheers.

Thrugelmir

Any amount you pay over and above the interest charged, will reduce the capital balance owed. As the capital balance owed reduces, the interest charged will reduce. So if you maintain your total payment at the same level you will progressively pay off your mortgage quicker.

Mortgage lenders normally only revise the amount they collect after changes in interest rates. So your normal monthly payment will include an element of overpayment.

The more you can throw at the mortgage the easier the task of repaying it will be.

kingstreet

They are wrong.

The overpayment comes off the balance, so the interest you pay next month is lower and so on...

An overpayment on a repayment mortgage can reduce the term, if you request that from the lender. Otherwise it reduces the monthly payment, but repays the mortgage in the original term, and saves you interest that way too.

JReacher1

Thanks. This is how I understood it but then this guy threw a spanner in the works and I started to doubt it!
Cheers for your help!