Interest only mortgage question

curtis122

This is one of those situations where I am overthinking and confusing myself!


I have an interest only mortgage for a rental property where I pay £200 a month mortgage payment which only pays off the interest on a £80000 loan.


I now am going to overpay £100 month but my mortgage monthly payment remains as £200 (as it needs to be a £1000+ a month for them to readjust it)


How will that then work if the monthly payment stays the same as the capital is now down to £79900 after the first month so the interest to be paid will be less but the monthly payment is still at £200 which is based on the interest on £80000.


This surely does not mean that the provider is making more money off me as I'm still paying for something that should be less now? Does that make sense!!

glentoran99

Your capital will be reducing and less interest charged, they aren't making more money of you. as each month goes on the capital will reduce by more than the £100 overpayment, ie £100 + difference in interest on the new capital

curtis122

So I have it straight in my head what you are saying is as the overpayment each months brings the capital down the difference between the set monthly payment and the interest different it covers, the difference will then come off the capital along with the £100 each month.


So as a silly example -


200 monthly payment
100 overpayment


after 2 months overpayment(£200) monthly should then be (if was adjusted) 195


new overpayment next month 105 Is that right!

Thrugelmir

Yes that's right. The additional £5 reduces the capital balance owed. Which then reduces the interest you'll pay the following month. Over time you'll be repaying more and more capital.

Remember the less interest you pay the more tax you may have to pay. As your taxable profit from lending will increase.

brit1234

curtis122 wrote: »

I have an interest only mortgage for a rental property where I pay £200 a month mortgage payment which only pays off the interest on a £80000 loan.

Just out of interest whats your mortgage repayment vehicle to go with the interest only?