Worth overpaying on interest-only?

FlumpyHall

I have had an interest-only mortgage for ten years and cannot afford to go on repayment. I have about £90k in equity so am thinking about moving to somewhere cheaper, although my daughter hates this idea. I can afford around an extra £200 a month (would be £600 more if repayment) - Is it worth me overpaying on this interest-only mortgage or shall I cut my losses and move to a cheaper area to get back on repayment? I obviously don't want to drag my daughter away from her school friends but I will have to sell the house anyway in 11 years...:(

pollyanna24

FlumpyHall wrote: »

I have had an interest-only mortgage for ten years and cannot afford to go on repayment. I have about £90k in equity so am thinking about moving to somewhere cheaper, although my daughter hates this idea. I can afford around an extra £200 a month (would be £600 more if repayment) - Is it worth me overpaying on this interest-only mortgage or shall I cut my losses and move to a cheaper area to get back on repayment? I obviously don't want to drag my daughter away from her school friends but I will have to sell the house anyway in 11 years...:(

If you can overpay by £200 a month, this is £26,400 over 11 years.

If you love the house and the area, I would do this. Not sure how you overpay on a interest only mortgage, but anything that you ovepay, you will surely be reducing your payment each month as the less you owe, the less interest you will pay. Minimal at first, but maybe getting bigger savings.

If you can't overpay, still save the £200 a month and have it ready to put on the mortgage in 11 years time. You might find that you if you do this, you can then remortgage and get a decent mortgage that you can afford.

Nick_C

How much is your mortgage interest rate? And what rate of income tax do you pay? If the interest you pay on your mortgage is less than the net interest you are getting on your savings then generally it is better to pay off some of the mortgage. But ensure you keep enough savings to pay for unexpected repairs and maintenance so you don't end up having to borrow again in the future.

Check that the terms of your mortgage allow you to make a capital repayment without penalty.

dimbo61

In 11 years your daughter will have left school!
Overpay whatever you can or are allowed each month.
Over the next 11 years you might be able to afford more each onth

bike_saving_expert

if your comfortable i think you should post some additional details about your situ (age earnings interest rate LTV) alternatively consult a broker/advisor

MacMickster

dimbo61 wrote: »

In 11 years your daughter will have left school!
Overpay whatever you can or are allowed each month.
Over the next 11 years you might be able to afford more each onth

In 10 or 11 years time, with the overpayments the amount owing will have fallen and your income may also have increased. If so you may be able to remortage at that time.

ed67812

If you can overpay on your mortgage without penalty
and
the interest rate on your mortgage is higher than your savings rate
and
you have enough savings in a rainy day fund

then this could be a good idea, but more info would help.

Have you actually got £90k equity or more? Is this based on a current valuation or was this your deposit against purchase price ten years ago? If it is the latter then you're likely to have more equity given price rises over the last decade....

Also, every £200 of overpayment made today will knock £200 off your outstanding balance (which would normally just stay constant on interest only). As the balance falls, the amount you need to pay to service the interest payment will fall (until interest rates change) a little bit. You can then use that little bit to increase your overpayment.....and the cycle continues everytime you make an overpayment.

If (and it is an if) the economy grows steadily, workers enjoy wage growth and interest rates stay at a level where you can keep servicing your interest only mortgage, over time the real value of the outstanding balance on your house will fall even if you didn't make overpayments.
For example, I work with somebody who has a lovely house - worth 300k+ which was 40k in the 80s. He has been on an interest only mortgage and so the balance he owes has always been 40k - many years earnings when he got the place, but not now!

FlumpyHall

Thanks guys. A bit more in for on me - age 42, mortgage £139k house valued at £235k (friend is an estate agent locally and similar are going for that), mortgage rate is 4.25% with Santander (fixed for 3 more years). I earn less now than I did when I took out the mortgage on a self-cert basis.

I have been left with quite bad credit from my estranged husband but have managed to get a high interest credit card so people have started to lend to me again. I'm in about £11k debt on a DMP. My situation is not good but I do seem to have quite a bit of equity, that's why i thought moving to a cheaper area would be good, although my daughter would be hearbroken and I think it would cause her a lot of stress as she doesn't seem to make friends easily and has other mental issues..

This is all keeping me awake at night so really stuck as what to do.

magpiecottage

Is the mortgage in joint names with your estranged husband - and does he have ownership rights over your home?

FlumpyHall

No it's only ever been in my name and solicitors have told me he doesn't have any rights on the house. We weren't married long enough for him to have any sort of claim. Also he owns two houses abroad so i could claim them if he gets funny with me.

amnblog

Not sure where the benefit is for the stress you would cause your daughter.