Should I clear off mortgage using savings?

jamesd

suse* wrote: »

I thought interest only meant you only paid the interest, so needed another way to repay the capital like an endowment, where repayment meant you pay the interest AND the capital so once it is paid off that's it. Why are interest only payments so much cheaper then if you're paying back both interest and capital, how does that work?

The minimum payments are just the interest. Any overpayments are capital. If no overpayments are made then some way to repay all of the amount borrowed at the end of the mortgage term will be needed. That used to be endowments or pensions, these days it's more likely to be pension or S&S ISA. Or just overpaying.

In jacklia's case the minimum monthly payment for the interest is £46.30 and the rest of the £88.30 monthly payment being made is an overpayment against capital of £42. Next month the interest bill is a little lower because that £42 is no longer owed.