Interest-only - for real?

zippy08

I'm a little mystified by what should be good news, but I am extremely reluctant to believe it!

I have an Interest-only mortgage on my main residence which has another 7 years to run. Some time ago, I called the bank's call centre and asked them the figure needed to pay off the mortgage. To my surprise, the figure I was given was basically the same as the outstanding interest. I knew when I took out the mortgage that I would need to pay the principal as well as the interest, so I thought it was a communication issue and my question was not being understood correctly. However, the CSA was insistent that what I needed to pay was the interest amount.

Not convinced, I then went into the bank branch and met a mortgage advisor face-to-face, and to my surprise, he repeated exactly the same thing - all I needed to pay was that interest balance! His explanation, which sounded plausible at the time, was along the lines that by virtue of a couple of over-payments, I had reduced the principal and the interest proportionately, leaving the stated amount to settle the mortgage. I walked away from that meeting somewhat confused, but obviously elated at the confirmation.

Having exhausted the points of contact at the bank, I am still extremely sceptical of being able to walk away after paying the interest outstanding. If true, I would seriously consider paying off the mortgage from savings, with interest rates where they are. Could some of the knowledgeable folk on this board help me make sense of the situation - why would the bank tell me I'm not liable to pay the principal amount? What am I missing here?

davidmcn

Without seeing the figures I don't think anybody can confirm it one way or another, but it's certainly possible if you've been overpaying. Isn't this apparent from your mortgage statements?

zippy08

The statements show the outstanding interest, and they are usually accompanied by  (or followed by) standard template letters that advise me to have a means of payment in in place, i.e. nothing specific my mortgage account.

Thrugelmir

Once a year you will receive a statement of account , this will show the amount that is currently owed. 
You will received letters from your lender over the past few years asking how you intend to repay the principle balance owed. 
Have you been overpaying your mortgage? 

davidmcn

Surely the statements show the balance of your account i.e. the principal? It would be odd for them to show the total amount of "outstanding interest", are you sure you're not misinterpreting what you're looking at?

zippy08

davidmcn said:

but it's certainly possible if you've been overpaying.

What I know for sure is that I haven't overpaid to the tune of the principal amount.

zippy08

davidmcn said:

Surely the statements show the balance of your account i.e. the principal? It would be odd for them to show the total amount of "outstanding interest", are you sure you're not misinterpreting what you're looking at?

I could be, I am at a loss - hence the post

Just pulled out the statement received in Jan 2020. Here's what it says ('nn' is the actual number on the statement, so where it repeats, it is exactly the same number, if that makes sense):

Summary of your total borrowing

Balance at 1 Jan 2019<tab>£nn + around £800
Total debits<tab>£x
Total credits<tab>£y
Balance at 31 Dec 2019<tab>£nn

Closing your mortgage

Total cost of repaying your mortgage<tab>£nn
Made up of
Mortgage balance<tab>£nn
Closing administrative charge<tab>£0.00

davidmcn

zippy08 said:

davidmcn said:

but it's certainly possible if you've been overpaying.

What I know for sure is that I haven't overpaid to the tune of the principal amount.

Maybe tell us who the lender is, and then others here might know whether they present the information in a confusing way. It sounds odd that the mortgage statements don't tell you what the balance of the account is, unless you actually ask for it.

zippy08

davidmcn said:

Maybe tell us who the lender is, and then others here might know whether they present the information in a confusing way. It sounds odd that the mortgage statements don't tell you what the balance of the account is, unless you actually ask for it.

Lloyds Bank, grandfathered from C&G.

Thrugelmir

zippy08 said:

davidmcn said:

Surely the statements show the balance of your account i.e. the principal? It would be odd for them to show the total amount of "outstanding interest", are you sure you're not misinterpreting what you're looking at?

I could be, I am at a loss - hence the post

Just pulled out the statement received in Jan 2020. Here's what it says ('nn' is the actual number on the statement, so where it repeats, it is exactly the same number, if that makes sense):

Summary of your total borrowing

Balance at 1 Jan 2019<tab>£nn + around £800
Total debits<tab>£x
Total credits<tab>£y
Balance at 31 Dec 2019<tab>£nn

Closing your mortgage

Total cost of repaying your mortgage<tab>£nn
Made up of
Mortgage balance<tab>£nn
Closing administrative charge<tab>£0.00

Perfect sense. As the mortgage is on an interest only basis the figure will not materially change (other than a few pence possibly).  In 7 years time the balance owed will need to be repaid in one form or another. 

davidmcn

zippy08 said:

davidmcn said:

Surely the statements show the balance of your account i.e. the principal? It would be odd for them to show the total amount of "outstanding interest", are you sure you're not misinterpreting what you're looking at?

I could be, I am at a loss - hence the post

Just pulled out the statement received in Jan 2020. Here's what it says ('nn' is the actual number on the statement, so where it repeats, it is exactly the same number, if that makes sense):

Summary of your total borrowing

Balance at 1 Jan 2019<tab>£nn + around £800
Total debits<tab>£x
Total credits<tab>£y
Balance at 31 Dec 2019<tab>£nn

Closing your mortgage

Total cost of repaying your mortgage<tab>£nn
Made up of
Mortgage balance<tab>£nn
Closing administrative charge<tab>£0.00

Right, nn is the principal you borrowed - it's not "outstanding interest". So that's what you repay.