Overpayment on IO only mortgage question

dancingbrave

Hi,

Re http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings
and this quote from Martin about making overpayments

Those with interest only mortgages need to be careful. Normally the repayments only go towards repaying the interest of the loan, not the capital (the actual amount you borrowed). So ensure any extra payments you make specifically go towards decreasing the capital (in other words decreasing the actual debt) to attract less interest.

Do the banks allow mortgage capital repayments if you are on a IO only mortgage? Is it just a case of asking for the overpayment to go towards paying off the capital, rather than the interest. We're on a BOE tracker with Alliance and Leicester.

Thanks for any advice

Graham

ajaxgeezer

One of my mortgages is interest only, and I can pay a lump sum off by stating that the payment is for the purposes of reducing the capital. The repayment gets calculated with the new outstanding amount on the first of the month.

So yes, at least some do.

dancingbrave

Thanks ajaxgeezer.

I was just concerned that Alliance & Leicester would say "sorry you've got an IO mortage, so any lump sum payment can only go towards the interest, not the capital". And that might still be the case, it just depends on the lender's T&C's right?

ajaxgeezer

Yep check them out, or get on the phone and ask. Be prepared to wait though, mortgage depts are busy at the moment lol. Even if you cant repay the capital there's nothing stopping you finding a good ISA and/or a monthly saver and putting your savings in there rather than paying the mortgage off. That way, when your deal ends you have the capital+ interest saved and ready.

Indeed, A+L have high-paying current accounts which would give you (last I heard, sorry if it's changed) 12% gross on your first £2500 as long as you paid the nominal amount in. You could always shovel it back out again to an ISA or a high monthly saver.

Granted, the mortgage way would be more convenient, but there's more than one way to skin a cat.

dancingbrave

Thanks for confirming. I'll get onto A&L . I'll check out the savings deals too as a back up.

Cheers...Gra