Pay off mortgage-which way is best?

gorillasinthemist

Hi All

I have an interest only mortgage (£210K Nationwide, 23 years) with no repayment vehicle. Although I do make small overpayments every month of £200 (not enough I know). I managed to get a good tracker (0.07 over base) before all the problems kicked off as well.

I have now received a large payrise (extra £1200 net p/m) and want to start paying off my mortgage but am not sure which way to go. Should I:

Change to repayment and shorter term? not sure if they will let me.

Make maximum overpayments each month (£1K)?

Overpayments would be more flexible but am I missing something major.

Thanks in advance.

dimbo61

if your deal is 0.07 over bank of england base ?? then I would fill your ISA allowance first as barclays and lloyds paying 6.5% at moment
then overpay by the £1000 a month if you can afford it.
overpaying is best way for you as if you cant afford to overpay one month
its not a problem.
treat the £1200 pay increase as £200 a month and you will not notice the
overpayments going out each month. this will over time also decrease the
interest you are paying on your interest only mortgage and therefore you can save even more into isa,s or high interest saving accounts to become MF
GOOD LUCK

17Dave

I estimate you should be paying £931 interest only at 5.32%.
A repayment figure would be £1320.50.
This gives you an idea of what you should be paying each month.
Nationwide would probably allow you to change to repayment.
However, by overpaying you give yourself some flexibility rather than having to pay £1320 per month you can choose a figure from £931 to £1931.

ailuro2

Congratulations on the pay rise.:D

Normally you can overpay 10% of the outstanding balance on a mortgage without being penalised.
In your case that's over £20K a year, or £1750 a month. Phone up Nationwide and ask if you can overpay by this amount, that should make a very large hole in the amount you owe.Then once the mortgage market has settled down you are better placed to pick other types of mortgage.

I agree you got a great deal- we are 0.49% above BofE rate, but with the TV news suggesting base rate drops that might not be passed onto bank customers, we should both be glad we've got tracker mortgages.:D

ps I agree you need to fill up your ISA's first - you'll get a better return on the money than the 5.32% you'd get the effect of by paying it off your mortgage.

gorillasinthemist

Thanks a lot everyone. I will do the ISA thing and then overpay the minimum to cover a repayment mortgage. I may as well wait till the deal runs out before I switch to repayment for the flexibility I will have.

Welshlassie

gorillasinthemist wrote: »

Thanks a lot everyone. I will do the ISA thing and then overpay the minimum to cover a repayment mortgage. I may as well wait till the deal runs out before I switch to repayment for the flexibility I will have.

If you are able to afford to overpay more than the repayment element and won't miss the extra from your payrise, you would be better paying it off your mortgage. Plug your figures into http://new.egg.com/visitor/0,2388,3_54988--View_1028,00.html this overpayment calculator and it will show you how much interest you would save and how much time you would cut off your mortgage by overpaying more than your repayment amount.
edit: By overpaying £1k per month you would be saving yourself £180k in interest over the term of your mortgage and 10 and half years in term.

Good luck.

h4nym

Be careful - when I had the Base+ 0.07 deal with Nationwide, the overpayment limit was £500 not £1000.

I switched to a Natwest Offset instead (at a higher interest rate) and now overpaying £4000 per month. It's still a lot cheaper overall.

You might want to consider switching your mortgage to a repayment mortgage on the original term and then overpaying that.

H