Mortgage - Lump sum payment

dosh1

Hi

I have an fixed rate interest only mortgage and have had for a few years now at 1.79% interest rate. This low rate has enabled me to save money in various ways over the years (ISAs, savings accounts etc). Pitiful interest rates for the majority of savings e.g. 2.5% avg.

My mortgage is soon to be up for renewal and I am thinking that it is now more beneficial to pay a lump sum off on my mortgage at this point as I should be able to do this without any penalties.

Please can you advise is this the best thing do do money-wise sith saving interest rates so appalling.

Presumably if I pay off more of the mortgage, there's less outstanding and so less interest owing at the end? I assume I won't see too much difference in monthly payments (assuming I get a similar interest rate to what I have currently)?

Thanks

getmore4less

Interest is not owed at the end you pay it each month as you go along.

stick your mortgage in a calculation with and without the overpayment.

http://www.whatsthecost.com/mortgage.aspx

If the net savings rate is better than the mortgage rate keep saving if not keep back what you need and think about reducing the debt with the rest.

dosh1

Is there a financial benefit in paying a lump sum off my mortgage if I have an interest only mortagage?

Example:

If I have £200,000 outstanding on the mortgage and I pay 1.79% per month interest. I then decide to pay off £100,000 of the outstanding payment now which reduces it to £100,000 outstanding. I will still be paying 1.79% per month interest but that shall be on £100,000 in stead of £200,000 so the monthly payment will reduce? Am I correct?

AnotherJoe

dosh1 wrote: »

Is there a financial benefit in paying a lump sum off my mortgage if I have an interest only mortagage?

Example:

If I have £200,000 outstanding on the mortgage and I pay 1.79% per month interest. I then decide to pay off £100,000 of the outstanding payment now which reduces it to £100,000 outstanding. I will still be paying 1.79% per month interest but that shall be on £100,000 in stead of £200,000 so the monthly payment will reduce? Am I correct?

In that example the monthly payment will exactly halve. Check the lender allows overpayments. You could then save the other half you are no longer paying, into for example a santander123 account at about 3% and pay off another a lump sum later from that.

You will though find the monthly interest is one twelfth of 1.79%. 1.79 will be the annual rate.