We'd like to remind Forumites to please avoid political debate on the Forum. This is to keep it a safe and useful space for MoneySaving discussions. Threads that are - or become - political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.

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: 17,023 Forumite
    First Anniversary First Post Name Dropper Photogenic
    Options
    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 it in 2026.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Name Dropper Photogenic First Anniversary First Post
    Options
    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
    First Anniversary First Post Combo Breaker
    Options
    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
    Name Dropper First Anniversary First Post I've helped Parliament
    Options
    2.44% seems high with 8y to go what's the LTV. 
  • Socajam
    Socajam Posts: 1,238 Forumite
    First Post Name Dropper First Anniversary
    Options
    I agree with MovingForwards - change to a repayment and pay the lump sum when you change
  • Wikikenkey
    Wikikenkey Posts: 268 Forumite
    First Anniversary First Post Combo Breaker
    Options
    LTV is 37%
    Equity is 214,000
  • Wikikenkey
    Wikikenkey Posts: 268 Forumite
    First Anniversary First Post Combo Breaker
    Options
    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
    First Anniversary First Post Combo Breaker
    Options
    Edit - Mortgage free one year before due date.  
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Name Dropper Photogenic First Anniversary First Post
    Options
    Being mortgage free will be worth the effort. Something you'll never regret achieving. 
  • Wikikenkey
    Wikikenkey Posts: 268 Forumite
    First Anniversary First Post Combo Breaker
    Options
    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

Categories

  • All Categories
  • 344.3K Banking & Borrowing
  • 250.5K Reduce Debt & Boost Income
  • 450.2K Spending & Discounts
  • 236.5K Work, Benefits & Business
  • 610K Mortgages, Homes & Bills
  • 173.6K Life & Family
  • 249.1K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards