We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

Interest Only Mortgage Query

Options
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

Comments

  • MovingForwards
    MovingForwards Posts: 17,148 Forumite
    10,000 Posts Seventh Anniversary Name Dropper Photogenic
    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.

    Mortgage started 2020, aiming to clear 31/12/2029.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    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? 
  • Wikikenkey
    Wikikenkey Posts: 268 Forumite
    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.
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    2.44% seems high with 8y to go what's the LTV. 
  • Socajam
    Socajam Posts: 1,238 Forumite
    1,000 Posts Second Anniversary Name Dropper
    I agree with MovingForwards - change to a repayment and pay the lump sum when you change
  • Wikikenkey
    Wikikenkey Posts: 268 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    LTV is 37%
    Equity is 214,000
  • Wikikenkey
    Wikikenkey Posts: 268 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    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.
  • Wikikenkey
    Wikikenkey Posts: 268 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    Edit - Mortgage free one year before due date.  
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Being mortgage free will be worth the effort. Something you'll never regret achieving. 
  • Wikikenkey
    Wikikenkey Posts: 268 Forumite
    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

Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350.8K Banking & Borrowing
  • 253K Reduce Debt & Boost Income
  • 453.4K Spending & Discounts
  • 243.7K Work, Benefits & Business
  • 598.5K Mortgages, Homes & Bills
  • 176.8K Life & Family
  • 257K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.