How best to reduce a combined interest-only-repayment mortagage?

OxonMacBlue

Our building society mortgage is part-interest-only (£40,000) and part-repayment (currently approx. £50,000) with approx. 8.5 years remaining of the mortgage term although we’re paying slightly over the required amount on our monthly repayments by direct debit. An unlinked endowment with a different investment provider has just matured and we’re intending to pay £20,000 off the mortgage.
The building society has asked whether we want it to offset the interest-only part or go towards paying off the repayment part. Our mortgage statement shows only one interest rate (2% above Bank of England base rate – yay!!) and there are no penalty fees for overpayment/early redemption.
What should we do – reduce the interest-only component or reduce the repayment part? Will it make any difference to the total that we repay?
Any thoughts or advice welcomed.

[Deleted User]

If the rates are the same, then it makes no difference.

Paying ii off the interest only part however would get you closer to zero, given that no capital repayments are being made, whereas the repayment part will ulitimately take care of itself.

But whatever suits you.

Thrugelmir

If you pay it off the interest only part. Then it will focus your mind on what still needs to be tackled in the years ahead.

OxonMacBlue

Thank you - I kind of thought so but (clearly!) wasn't sure.

barbedhook

I would definatly pay it off the interest only mortgage and concentrate on paying it off altogether. Your repayment mortgage reduces every month but your interest only stays the same.

dimbo61

If you pay the £20,000 off the Interest only part and then pay about £215 each month ( Interest only part) you will have mortgage finished in 8.5 years

OxonMacBlue

Thank you, all.


Clearly there's only one way to go - so that's really helpful.


Thank you, dimbo61 - we're going to see if we can divide our monthly payment and cover the interest-only part that way.