Paying off part of an Interest Only mortgage

M4ri4

Hi there, this is my first post so I hope it’s ok.
We have an interest only mortgage with 13 years to go. We have Isa investments to help pay at the end. One company has said there will be a shortfall at the end.
should we use the investments now to reduce the mortgage by 2/3rds, and pay a little extra each month, on top of our normal payments.

Or would it be better just to deal with the rising interests a different way!? ( no idea how though!)
any tips appreciated 
thank you 

400ixl

There are two sides to this I assume.

It is the endowment company who are saying there will be a shortfall? You could use your ISA to cover this gap and then that combined with the endowment will pay off the mortgage at the end.

You could pay into the mortgage itself to reduce the amount outstanding by that amount over the period of the mortgage.

We had many years where our endowment was saying that it would be in deficit around the mid term. This gap started closing in the last few years to the point where it overpaid by 10% with the final bonus. We were fortunate that we had already paid the interest only mortgage in full before then so this was all upside.

I guess the question would be what is the interest rate on the mortgage (is it fixed) and is it higher than the amount you are going to get over the length of the mortgage from the investments.

K_S

@m4ri4 Welcome to the forum!

I guess the factors to consider are - what's the current interest rate, is it fixed/variable, will you have to liquidate investments to make any mortgage overpayments or is it already in cash, how exposed are you to rising interest rates, etc.

M4ri4 said:

Hi there, this is my first post so I hope it’s ok.
We have an interest only mortgage with 13 years to go. We have Isa investments to help pay at the end. One company has said there will be a shortfall at the end.
should we use the investments now to reduce the mortgage by 2/3rds, and pay a little extra each month, on top of our normal payments.

Or would it be better just to deal with the rising interests a different way!? ( no idea how though!)
any tips appreciated 
thank you 

M4ri4

400ixl said:

There are two sides to this I assume.

It is the endowment company who are saying there will be a shortfall? You could use your ISA to cover this gap and then that combined with the endowment will pay off the mortgage at the end.

You could pay into the mortgage itself to reduce the amount outstanding by that amount over the period of the mortgage.

We had many years where our endowment was saying that it would be in deficit around the mid term. This gap started closing in the last few years to the point where it overpaid by 10% with the final bonus. We were fortunate that we had already paid the interest only mortgage in full before then so this was all upside.

I guess the question would be what is the interest rate on the mortgage (is it fixed) and is it higher than the amount you are going to get over the length of the mortgage from the investments.

The rate isn’t fixed it’s a tracker to the base rate, will go to 3% on the 1st November. (And then higher shortly I expect!! We only pay the interest on the mortgage and have 2 separate stocks & shares isa’s running along side it to pay it off. 

tacpot12

Now is a bad time to be lookign to see investments. I think I would pay the higher interest rate until the spring of next year and see if your investments have recovered. I think they are quite likley to bounce back much more than the higher rate of interest will have hurt you. 

If you have any spare money at all, I would buy (invest) more in any assets that have done well when the stock markets were doing well.

Your situation really does reinforce the view that Interest-Only mortgages are a product designed for sophisticated customers who are happy with the investment risks they are taking.