Overpay Repayment or Interest Only Mortgage?

cjohnson355

Hi,

We have a part repayment and part interest only mortgage that we'd like to pay off 20K. We have been told by our bank that we could pay a lump sum of £6000 off the repayment mortgage before incurring any penalties or could pay the whole 20K off the interest only side without incurring any penalties. Not quite sure what to do here? Should we pay all 20K on just one acc or split between the two. Thank you to anyone that replies.

Thought I should add a little more info
Both loans are for 21 years at a rate of 2.4% (we retire in 7 years and the plan is to sell and be mortgage free)
The interest only loan is 220K and the repayment is 68K

dimbo61

What rate of Interest are you paying on the 2 parts?
Pay the higher rate first so IF repayment then £6,000 off that and £14,000 off the IO mortgage.

cjohnson355

dimbo61 wrote: »

What rate of Interest are you paying on the 2 parts?
Pay the higher rate first so IF repayment then £6,000 off that and £14,000 off the IO mortgage.

Thank you for replying

Thought I should add a little more info
Both loans are for 21 years at a rate of 2.4% (we retire in 7 years and the plan is to sell and be mortgage free)
The interest only loan is 220K and the repayment is 68K

Yorkie1

As both are the same interest rate, and your definite plan is to sell, I can't see there being much in it (assuming your sale price will cover the I/O loan).

tlc678910

If you pay a chunk off the repayment mortgage I expect the bank would recalculate and lower your monthly mortgage payment so if you are finding your mortgage payments a strain you could pay the £6K off the repayment mortgage and then enquire when the "new year" starts for your mortgage so you can pay off a further 10% penalty free and so on until the money is gone.

If however you find your mortgage payments are comfortable for you and you pay the money off the interest only part of the mortgage you will then continue with your current repayment level and have more equity when you come to sell.

Tlc

cjohnson355

tlc678910 wrote: »

If you pay a chunk off the repayment mortgage I expect the bank would recalculate and lower your monthly mortgage payment so if you are finding your mortgage payments a strain you could pay the £6K off the repayment mortgage and then enquire when the "new year" starts for your mortgage so you can pay off a further 10% penalty free and so on until the money is gone.

If however you find your mortgage payments are comfortable for you and you pay the money off the interest only part of the mortgage you will then continue with your current repayment level and have more equity when you come to sell.

Tlc

Thank you very much for replying. This was just the kind of info I was looking for and now know what to do. Thanks again x