Interest Only Mortgage Query

I have an interest-only mortgage with 8 years left to clear.  The balance at the moment is £126,000.  My mortgage is currently £257.00 a month.  I have two options: (a) Would it be better to overpay each month (I am not sure if one can overpay an interest-only mortgage, and does this reduce the interest or the capital), or (b) pay an initial lump sum of £30,000 and thereafter, lump sums of approximately £12,000 a year till the end date?  (I have checked with mortgage company and I can make lump payments as frequently as I wish without penalty.)   What would be the better route to get the balance down quicker?  Or is there another option?  Thank you. 
«1

Replies

  • MovingForwardsMovingForwards Forumite
    16.3K Posts
    10,000 Posts Fourth Anniversary Name Dropper Photogenic
    Forumite
    Remortgage to a capital repayment mortgage.
    Overpay current I/O mortgage.*
    Pay lump-sum in one go (provided you have additional savings), then make overpayments.*

    * By reducing the £126k, the interest payable each month will also start to reduce.

  • ThrugelmirThrugelmir Forumite
    89.5K Posts
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Forumite
    Yes you can overpay your mortgage. By reducing the debt owed, ie capital balance , the interest charged will fall. Interest is calculated daily and charged monthly. The sooner you overpay the more interest you'll save. 
    Who is you lender currently? 
  • WikikenkeyWikikenkey Forumite
    268 Posts
    Part of the Furniture 100 Posts Combo Breaker
    Yes you can overpay your mortgage. By reducing the debt owed, ie capital balance , the interest charged will fall. Interest is calculated daily and charged monthly. The sooner you overpay the more interest you'll save. 
    Who is you lender currently? 
    Ok - My current lender is Foundation Home Loans.
  • getmore4lessgetmore4less Forumite
    46.9K Posts
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Forumite
    2.44% seems high with 8y to go what's the LTV. 
  • SocajamSocajam Forumite
    1.2K Posts
    1,000 Posts Second Anniversary Name Dropper
    Forumite
    I agree with MovingForwards - change to a repayment and pay the lump sum when you change
  • WikikenkeyWikikenkey Forumite
    268 Posts
    Part of the Furniture 100 Posts Combo Breaker
    LTV is 37%
    Equity is 214,000
  • Thank you all for your advice.  I have been looking at Martin's overpayment calculator and it seem that overpaying monthly brings the balance down quicker than overpaying annually so have decided to pay an initial lump sum in of £20,000 and then make monthly overpayments - if I can keep this up, I could be mortgage free two years before due date.  Will speak to mortgage company tomorrow.  Wish me luck.
  • WikikenkeyWikikenkey Forumite
    268 Posts
    Part of the Furniture 100 Posts Combo Breaker
    Edit - Mortgage free one year before due date.  
  • ThrugelmirThrugelmir Forumite
    89.5K Posts
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Forumite
    Being mortgage free will be worth the effort. Something you'll never regret achieving. 
  • WikikenkeyWikikenkey Forumite
    268 Posts
    Part of the Furniture 100 Posts Combo Breaker
    Hi all - re my previous query.  My mortgage company has said:

    "you are able to make lump sum payments to your mortgage account as frequently as you wish, without incurring any penalties. Any payments received of £1000.00 is classed as a lump sum payment and will result in your monthly payment being recalculated".  

    They have also said that any overpayments I make will go towards reducing the balance.

    Martin has advised that one should always tell lender that you want your overpayments to reduce the term of the mortgage.  Am I right in thinking that reducing the balance is the same as reducing the term?  I just want to make sure that any overpayments I make are being used in the correct way.  Thank you

Sign In or Register to comment.
Latest MSE News and Guides

British Gas prepay meter users...

...to pay less for gas from 1 April

MSE News

The 'odd Easter flavours' thread 2023

What bizarre food stuffs have you spied?

MSE Forum

Energy Price Guarantee calculator

How much you'll likely pay from April

MSE Tools