Death by Interest only mortgage....

Localmilkman

Hello all,

This is my first post and I am hoping to get some much needed help from this forum. Please be kind! :j

I have a £100k Santander mortgage. Interest only (standard variable rate). 19 years remaining.

I would like to make a lump sum overpayment and then possibly make recurring monthly overpayments (there are no restrictions on the amounts of overpayments). My questions are as follows:

1- If I make a one-off lump sum overpayment, say £10k, Santander online states that this will go towards reducing my monthly payment. Would this mean my overpayment is merely paying towards the interest of the loan, and not the loan amount?

2- I read from another thread in this forum that when overpayments are made for a Repayment mortgage, one of two things can happen - you can either reduce the number of terms of the mortgage or reduce the mortgage amount. (I also read, banks tend to automatically reduce the mortgage amount as its lucrative for them to do this, as opposed to reducing the number of terms).

As I have an interest only mortgage do I also have the above choice? And what are the benefits of either?

My objective, like most people, is to be mortgage free. Any assistance is greatly appreciated. :T

middleclassbutpoor

You have £100k on interest only

You pay £10k off (This in effect gives you £10k more equity in your property)

They recalculate your new payment based on £90k.

You should be able to ask that they keep your monthly repayments at the same as they are now which will also reduce the term naturally.

If they can't do that - save the difference an make lump sum overpayments.

1962Tycoon

Hi I am not an expert , but have a couple of Mortgages on Interest only .
As i understand it if you make a lump sum overpayment of 10k that will pay off part of the capital meaning you owe 90k your monthly payments would then be reduced as you owe less money . However you could keep the payment the same which will also knock a small amount off the capital each month .
It is probably worth ringing Santander and speaking to them to check your options . I have a mortgage with them and they are very helpful.



Hope this helps.

AnotherJoe

With 1, that's true but simply increase monthly payments to compensate. And of course the amount you owe goes down with an overpayment. . If you owe £100k and pay off £10k you now owe £90k.
2. I think you've mangled that a bit as it doesn't make sense. But then neither do these type of conspiracy theories either.
It doesn't matter which you choose as far as how much you owe and how long you'll pay it comes to the same thing in the end as long as you increase payments voluntarily if they are reduced.
The main benefit to not reducing the term is that you are not locked into higher payments however with an IO mortage I would say reduce the term so you are focussed on getting it paid off, eg in effect it becomes a repayment mortgage in practice if you keep overpaying

minimike2

Why are you paying standard variable rate?

Even if you can't move the mortgage elsewhere the least you need to be doing is looking to get a retention deal from them. You are literally flushing money down the toilet by staying on it.

peter12345678910

How much is this rate? You may be better of changing the interest only to a repayment mortgage if the interest rate is lower.