Interest Only better for early years?

techno12

Hi,

I've had a mortgage for nearly 2 years now (along with a lot of people I face the minefield of remortgaging soon). Looking at my statements, out of the £800 or so I pay each month, only £130 has been going into paying off the capital, the rest was interest.

So, surely, it's better to get an Interest Only mortgage where the payments are say £600, and pay off the capital yourself with the extra £200? As at the end of the day, when you come to the end of your special rate period, and you're looking to remortgage, the only factor that matters is how much you have left to pay.

I was just shocked how little I've actually paid off so far that's all, and with the fees for a remortgage being added to the outstanding balance I'm more or less back to square one!

sammyjammy

The point is if you're only paying £130 off the capital then the interest due would be £670 per month, when you take out a mortgage the repayments are worked out on paying off the interest on the amount owing each month and repaying enough capital so that over the term that is paid off in full. As time moves on you will pay less interest and more to repay the capital so in your case the £130 that pays off the capital will increase slowly month by month. This is why you should always take a mortgage over as little term as you can comfortably afford as you'll pay less interest.

Hope that explains it I might have rambled a bit!

Sam

techno12

Yeah, I know that, but still I'd rather at the moment, (27 years left on mine, though I'll change that to 20 when I remortgage soon) have £200 being knocked off the balance each month instead of my current '£130 ish that creeps up slightly each month'.

It's just that if I'd gone interest only and paid off some of the capital myself each month I'd have been miles better off (ie my mortgage balance would have been less when it comes to remortgage time)

mpsavuk

People say that renting is dead money yet they never take into account all the interest they pay in the early years of a mortgage.

Thats dead money as well. Straight into the Banksters pocket.

sammyjammy

But my point was the interest will be the same so if you chose to pay £200 a month towards the capital when its on IO you'll have to pay a total of £870 not £800. Why not just keep it on repayment and overpay it each month by as much as you can, its the same result and you won't have to pay to change it to IO.

techno12

Yeah, I only today found out that my current mortgage allowed me to overpay. In the "Key Facts" thingy when I took it out it said I couldn't. grr!

Also had the leech of a broker call me up wanting my business. After he forced me to get useless life insurance (I'm single) for 4 years otherwise I had to pay £2000+ to him. He never mentioned this when we arranged the mortgage. I'm not dealing with brokers again because of this, will try to work out how to remortgage on my tod ;-)

sarkin

On a repayment mortgage you pay more interest in the early years, with the last 5 being mainly capital. So keep paying and soon the capital will reduce which will save you more money

maninthestreet

techno12 wrote: »

Yeah, I only today found out that my current mortgage allowed me to overpay. In the "Key Facts" thingy when I took it out it said I couldn't. grr!

Also had the leech of a broker call me up wanting my business. After he forced me to get useless life insurance (I'm single) for 4 years otherwise I had to pay £2000+ to him. He never mentioned this when we arranged the mortgage. I'm not dealing with brokers again because of this, will try to work out how to remortgage on my tod ;-)

It seems you might have been mis-sold the life assurance. What was the £2000 for that the broker said you had to pay to him if you didn't take out
life assurance from him?

TwelfthMan

My guess would be for the clawback on the life cover commission.