Sanity check - overpaying interest only

booglehoop

Long time lurker, first time poster needing to ask a stupid question...

I have an interest only mortgage which I have been happily repaying for many years now on the basic understanding that my overpayments were reducing the capital of the loan. I today read the following from Which:

"On a repayment mortgage, paying extra on your mortgage helps you pay off the capital faster. But with an interest-only loan, overpaying will only reduce your future interest payments, not the loan itself, so this is unlikely to be a viable option for paying down your loan."

Is it me or is this statement totally misleading? Have I fundamentally misunderstood how interest only mortgage work? Surely future interest payments are reduced precisely because the capital is reduced?

kingstreet

I disagree with the statement.

Most lenders would deduct overpayments from the capital of an interest-only mortgage and future interest would be reduced.

Thrugelmir

Badly worded. Possibly the message being conveyed is that ad-hoc overpayments will be potentially insufficient to totally clear the debt owed.

booglehoop

Thanks for above replies. Sometimes when you read something (on a reputable site like Which?) which appears to run so counter to what you thought to be true it causes a moment of minor panic.

Even dug out my mortgage paperwork to sanity check myself!