Interest Only Mortgage...what to do?

alex_bruce

I have an interest only mortgage (30K with 17 years remaining) with a very low monthly repayment/interest rate and I want to know my best option in terms of paying it off sooner? My financial situation has recently improved and as I am only paying £38 per month and want to know if the best thing to is convert it to a repayment mortgage, assuming the lender will allow me to do this? Alternatively is it better to pay off the amount in full or part lump sums from my savings? I also have a repayment mortgage for approximately 60K and I appreciate the obvious benefits of overpaying this to pay off the debt earlier (I am currently doing this) but I am not sure of the best solution with regard to my interest only mortgage debt. Any advice would be much appreciated!

Yorkie1

What are the interest rates and length of time left on each?

What were your original plans for repaying the £30K?

You could simply overpay the interest only mortgage within any limits allowed, which would have the effect of reducing / paying off the capital in the same way as a repayment mortgage, but without the need for a new credit check etc by the lender.

But what might be best for you will depend on your overall situation.

alex_bruce

Thanks Yorkie!
The interest rate is 1.49% and there are 17 years left to pay however I want it pay it off much earlier if possible.
The plan was to pay it off via an endowment but because of a debt at the time the money was used elsewhere when the policy matured unfortunately!!
I now have about 40K in savings most of which are in higher interests accounts or ISA's so i'm just wondering what to do.

dimbo61

Overpay each month by £250 and the mortgage ( Interest Only part ) will be paid off in 8/9 years.

ViolaLass

You can earn more than 1.75% on your savings - financially, it would be best to hold on to them until such time as your mortgage rate goes above your savings rate then pay the mortgage off (in one go if there are no penalties for doing this).

PeacefulWaters

alex_bruce wrote: »

Thanks Yorkie!
The interest rate is 1.49% and there are 17 years left to pay however I want it pay it off much earlier if possible.
The plan was to pay it off via an endowment but because of a debt at the time the money was used elsewhere when the policy matured unfortunately!!
I now have about 40K in savings most of which are in higher interests accounts or ISA's so i'm just wondering what to do.

You owe c£30k.

Either ensure your saving rate after tax is above 1.49% or pay off in full now (assuming there are no charges for doing so).

alex_bruce

Many thanks for all your help. Your advice is greatly appreciated. As my currents savings rate (2.3%) I higher than the interest only rate (1.49) I may simply increase my monthly payments to shorten the period of the debt. :T

ViolaLass

alex_bruce wrote: »

Many thanks for all your help. Your advice is greatly appreciated. As my currents savings rate (2.3%) I higher than the interest only rate (1.49) I may simply increase my monthly payments to shorten the period of the debt. :T

Why not just pay off in full at the end? Then you can earn the maximum interest in the mean time.

kidmugsy

alex_bruce wrote: »

As my currents savings rate (2.3%) I higher than the interest only rate (1.49) I may simply increase my monthly payments to shorten the period of the debt.

Good grief, why? Somebody is near-gifting you a loan at 1.49% p.a.; treasure it until you must pay it off, or until you can no longer get more than that on your savings.

If you have spare cash check the rest of your finances: do you have the right insurance policies, are you contributing to a pension .....?