Interest only mortgage

remyroo

We have a mortgage which is part repayment and part interest only. Fixed rate ends in July so we will be able to use our endowment  to pay off the interest only part. However I’m now considering paying off the the repayment part instead and overpaying the interest only as this gives us some flexibility.  The interest only mortgage is £33000 and we have 9 years left. Does this sound sensible?

tacpot12

By overpaying, you are effectively converting the interest-only mortgage to being a repayment mortgage, but with the flexibility to increase or reduce overpayments to a large degree. Most repayment mortgages will allow some overpayment, usually 10% pa without penalty.  My worry would be is that you don't repay the interest-only mortgage within 9 years.

Repayment mortgages are great for people with less self-discipline as the mortgage ends up being paid off sooner or later. 

MalMonroe

Could you ask your lender? Will they allow you to do what you are asking? As tacpot12 says, you could end up having to pay penalties if not handled properly. 

steampowered

Do the two mortgages have different interest rates? 

remyroo

Same fixed rate for both mortgages. My plan is to fix again for 2 years (interest only mortgage) and overpay the allowable 10 % each year and then pay any extra needed to bring it in line with what we would have paid under a repayment mortgage before fixing again.

MWT

Do check with the lender that failing to use the planned repayment vehicle to repay the interest only mortgage will not cause problems, as you will be continuing with the interest only mortgage without a specific repayment vehicle at that point...