intrigued but confused..

saram613

hi all, ive been reading thru the various posts on mrtgage free wanabee's. Im very interested but confused, can any one offer me advise please!

I have a £105,000 outstanding interest only mortgage with an 18 year and 11 month term remaining. I have just switched to a 5 year fixed rate of 5.83% with Nationwide. I have an ISA savings plan running against the mortage to hopefully pay of the mortgage in 18 years and 11 months - it is projected to be on target plan at the moment.
My question is, if i wanted to start overpaying, (the terms of my mortgage allows me to overpay by up to £500 a month with no penalties) how do i do this? Do i increase my ISA contributions or do i overpay my mortgage payments? I have between £50 to £100 each month to invest. I dont understand how paying any extra off on an interest only mortgage works?? Thanks for your time!

Lunar_Eclipse

saram613 wrote: »

hi all, ive been reading thru the various posts on mrtgage free wanabee's. Im very interested but confused, can any one offer me advise please!

I would pay the extra £50-100/month off the mortgage, since this will reduce the capital owing at the end of the term (which in reality means you'll pay it off quicker) AND the interest due monthly thereafter (assuming the interest is NOT calculated on an annual basis - check this first.)

We have an offset interest only mortgage with no restrictions on 'overpaying', but since it's with an online bank, I just transfer money to the mortgage account as I could do to a savings account which reduces the mortgage outstanding and then the monthly interest due.

It's amazing what an impact overpaying has on the payments. Brilliant! :j

You need to ask your provider how you actually make the overpayments - eg electronic transfer with your mortgage account number as the 'reference' would be very convenient, sending cheques in etc. But as mentioned, firstly check the interest isn't calculated annually (otherwise it's beneficial to hold off paying anything extra until just before your annual date) and check that there isn't a limit re: the number of payments you are physically allowed to make. Some companies cap it to x amount and y number of payments.

Good luck. HTH.