Overpaying mortgage payments

Sarahwithlove

I think whichever one you pay it off you're gonna end up in same position. Only thing I would say is that by paying it off interest only if you find when your fix ends your circumstances have changed its less on interest only and more repayment. Eventually you'll need to move all the interest only over to repayment. So to me the more you can reduce that the better. Also just because your DD might go down doesn't mean you can't set up a standing order for the difference. If you want to move interest only to repayment eventually you may be better off leaving the term as long as possible as then you'll find you can move more of the interest only over as your monthly payments will be more affordable to lenders. Then just overpay each year. 

badmemory

I know this is only me but I have always thought that interest only mortgages are dangerous.

joseph80

badmemory said:

I know this is only me but I have always thought that interest only mortgages are dangerous.

They can be, but it depends on your plan for repaying it at the end of the term. We only have £30k of our mortgage on Interest Only which we will reduce as much as possible in 2027 when our current fix ends and move it onto the repayment balance so pretty comfortable with the risk. 

joseph80

Sarahwithlove said:

I think whichever one you pay it off you're gonna end up in same position. Only thing I would say is that by paying it off interest only if you find when your fix ends your circumstances have changed its less on interest only and more repayment. Eventually you'll need to move all the interest only over to repayment. So to me the more you can reduce that the better. Also just because your DD might go down doesn't mean you can't set up a standing order for the difference. If you want to move interest only to repayment eventually you may be better off leaving the term as long as possible as then you'll find you can move more of the interest only over as your monthly payments will be more affordable to lenders. Then just overpay each year. 

Thank you. That was my original thinking too, but when I used the money saving expert calculator to see the effect by 2027 of us paying £5k off the interest only balance compared to £5k off the repayment balance, that decided it for me. 

We are not necessarily trying to aim to completely get rid of the interest only balance as we are fairly confident of methods of repaying whatever is left on it in 13 years time. Plus as the repayment balance reduces, it will become more and more affordable to add a chunks of the interest only balance to the repayment balance each time we fix. 

badmemory

Isn't the main thing really to keep paying the same amount at least even though the required payments have reduced.  It is such a temptation to say lets spend on whatever this month rather than do that.

joseph80

joseph80 said:

We are considering overpaying on our mortgage with the hope of being mortgage free sooner. Either a lump sum or regular overpayments. 

Current mortgage balance
£126,495

This is made up of:
£31,087 (Interest only)
£95,4708 (Capital and Interest)

Remaining Term = 15 years (currently fixed rate to Nov 2027) - intend to reduce the term when the fixed term ends.

We are allowed to overpay on each element of our mortgage without penalty (up to 20% of the balance).

My question is, if we were to make a one-off overpayment of say £5,000 - is it financially better to pay this off the 'Interest only' element or the 'Capital and Interest' element of our mortgage? Same question if we opt to pay monthly overpayments rather than a lump sum - I presume the answer will be the same?

Thank you.

Update on the above (after going around the houses a bit)!...

£6,200 paid off

New current mortgage balance (Nov 2024)
£120,295

This is made up of:
£24,887 (Interest only)
£95,408 (Capital and Interest)

Remaining Term = 12 years (currently fixed rate to Nov 2027)

When the current fix ends in 2027 (and we have 9 years remaining) we hope to move all (or most) of the interest only balance into the repayment (capital and interest) balance.