Interest Only Mortgage Query
in Mortgage-free wannabe
19 replies 645 views
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.
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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.
Who is you lender currently?
Equity is 214,000
"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