Interest Only Overpayments or Remortage ?

Clarin1603

I wouldn't mind some opinions on our current situation as my wife and I are split on the best way to approach this.

Current situation:

32 yr term 127k on IO 2% above BBR so currently 2.5% and 124k on repayment 3.99%. combined interest rate of 3.26% with a LTV of 73%.

We are not happy with the term of the current mortgage as it goes into our retirement and we want to have it paid off much sooner so we are looking at the best way to do this. Our initial thinking was to make overpayments on the IO side of the mortgage as this has unlimited overpayments but the repayment side is considerable higher IR so we thought we should make overpayments there and then focus on the IO piece.

One other option is to put the whole lot onto a repayment mortgage over a 27yr term with a rate of around 1.89% for a 2 yr fix and then jumping up to 3.99% SVR but make overpayments throughout the 2yr fix period.

We also have 20k in cash saved which has been growing as our emergency fund / repayment vehicle for the IO mortgage but we would rather forget about this and keep it should we need it in an emergency as sticking it into the mortgage now would not get us below 60% LTV for the best deals so for the few £££ savings each month on the payments we would rather have the cash to hand.

We can afford to pay an additional £600 per month as OP either way but not sure the best way to do this to get the maximum impact. Everyone seems to be saying get a deal now but I'm not sure on whether to just make the overpayments where we are or move it all onto a repayment.

Any thoughts, advice welcome...

Thrugelmir

Overpay the higher interest rate part first. Whether it's interest only or repayment isn't relevant.

Is the 2% above base fixed for the term of the mortgage? If it is then you should maximise this to your advantage. Personally I wouldn't let go of it. With an eye to the future.

Only hold what you need to in the emergency fund. As you are overpaying easier enough to replenish if you dip into it once in a while.

getmore4less

Is thee £600 on top of continuing to save/build the £20k?

Stick the numbers in a calculator to see what you need to be overpaying/saving to reach a target

32y £127k 2.50% £481pm £265pm(io)
32y £124k 3.99% £573pm

current payments £573+£265= £838

Overpay the repayment by £600pm £1173 total.

paid off in 131months last payment £550.

then divert all the money(£1438) to the £127k paid off in another 97month

forecast is 228months. 19years without using the £20k.

If 19 years is fast enough then it is down to a bit of optimisation and hoping rates don't go up, if not find some more money.

model alternatives and various rate factoring any fees.

Clarin1603

The 20k would just be left and we would put all of our extra cash into the mortgage as overpayments. The 2% above base is for the remainder of e mortgage so I know if is a good deal which is why we have not touched it before. I suppose we are just thinking about it being interest only but I take the point of forget about that and focus on the largest interest rate first. I suppose that was why we thought putting everything onto a repayment on a lower rate might be a better option but I will do some more modelling using the calculators.

dimbo61

32 yr term 127k on IO 2% above BBR so currently 2.5% ( IS THIS FIXED OR A TRACKER ?)and 124k on repayment 3.99% ( IS THIS FIXED OR A TRACKER?)
Even if the 3.99% part is fixed I would still be ringing your lender and check if you can overpay.
I would also check if they have any better deals for the £124,000 part if it is not fixed
Most fixed deals allow 10% overpayment each year.
If you can overpay the 10% so £12,400
Rebuild your savings each month

Clarin1603

Thanks all.

Both are on their standard variables so will change when interest rates increase. I will check to see if we can mov the repayment onto a better deal which may be the best option and overpay as much as we can.