Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • ian23
    • By ian23 6th Aug 18, 2:30 PM
    • 3Posts
    • 1Thanks
    ian23
    Repayment vs Interest only + Overpaying
    • #1
    • 6th Aug 18, 2:30 PM
    Repayment vs Interest only + Overpaying 6th Aug 18 at 2:30 PM
    Hello everyone
    Could someone please tell me the advantages and disadvantages of these?

    I have been paying interest only for years and started overpaying 200 a month a year ago I have a bit more money now. My mortgage discount is coming to and end and I'm not sure whether to change to a repayment or carry on with my current situation. I've had had a look at my options and it would be about the same monthly payment for both.

    Thanks in advance for any help :
Page 1
    • AnotherJoe
    • By AnotherJoe 6th Aug 18, 2:40 PM
    • 10,122 Posts
    • 11,380 Thanks
    AnotherJoe
    • #2
    • 6th Aug 18, 2:40 PM
    • #2
    • 6th Aug 18, 2:40 PM
    How old are you?
    How long has the mortgage got to run?
    What is your pension position?
    • ian23
    • By ian23 6th Aug 18, 2:42 PM
    • 3 Posts
    • 1 Thanks
    ian23
    • #3
    • 6th Aug 18, 2:42 PM
    • #3
    • 6th Aug 18, 2:42 PM
    45
    18 years (I could remortgage)
    I don't have a pension in place, but I do have savings

    Thank you!
    • sal_III
    • By sal_III 6th Aug 18, 3:27 PM
    • 560 Posts
    • 549 Thanks
    sal_III
    • #4
    • 6th Aug 18, 3:27 PM
    • #4
    • 6th Aug 18, 3:27 PM
    If you can get the same rate for both, It's probably the same if you can keep financial discipline and keep up with the over payment. Otherwise if might be tempting to skip over payment for a period and end up with a hefty balance to repay at retirement, having to either blow your savings to cover it, or sell your home.

    Bear in mind that at 45 you are fast approaching a moment in your life when remortgaging and extending the term is going to get harder and harder.
    • Gurj247
    • By Gurj247 6th Aug 18, 3:33 PM
    • 110 Posts
    • 40 Thanks
    Gurj247
    • #5
    • 6th Aug 18, 3:33 PM
    • #5
    • 6th Aug 18, 3:33 PM
    It all depends on how much you can save / gain over the period.

    At first I had a repayment mortgage for 2 years (as job security for wife was issue) then moved to an Offset product (because savings rates were low and I gained more by putting money into that then anything else I was willing too)

    The above has meant that I have been (well will have by Feb 19) paid off my mortgage (£116k over 7 years) thanks to good job and wife working with me on it.

    I liked the offset product as I could put as much as I wanted into it, but also have access to it too - so acted as my rainy day fund too.

    You mention you have savings - well if the interest rate on your savings is less than your offset product, then put your money there and get your interest payments down, so more of your re-payments helps reduce the size of the loan.
    Date of Update – 28/07/16
    Goal 1 – Reduce Mortgage - £116,500/£120,000 = 97%
    Goal 2 – Skyline GTR Fund - £0/£40,000
    Goal 3 – Savings – Rainy Day - £6000/£10,000
    Goal 4 - Savings for Daughter - £100/mth
    • Thrugelmir
    • By Thrugelmir 6th Aug 18, 4:52 PM
    • 59,491 Posts
    • 52,802 Thanks
    Thrugelmir
    • #6
    • 6th Aug 18, 4:52 PM
    • #6
    • 6th Aug 18, 4:52 PM
    I have been paying interest only for years and started overpaying 200 a month a year ago
    Originally posted by ian23
    How are you proposing to clear the debt before the mortgage term ends? £200 a month may not be sufficient. If you've only been on interest only terms for years.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • getmore4less
    • By getmore4less 6th Aug 18, 6:11 PM
    • 32,681 Posts
    • 19,658 Thanks
    getmore4less
    • #7
    • 6th Aug 18, 6:11 PM
    • #7
    • 6th Aug 18, 6:11 PM
    Hello everyone
    Could someone please tell me the advantages and disadvantages of these?

    I have been paying interest only for years and started overpaying 200 a month a year ago I have a bit more money now. My mortgage discount is coming to and end and I'm not sure whether to change to a repayment or carry on with my current situation. I've had had a look at my options and it would be about the same monthly payment for both.

    Thanks in advance for any help :
    Originally posted by ian23
    The main advantage of interest only it has a lower contractual payment which gives options to do other things with the money.

    There are only 4 variables to a mortgage

    Amount, rate, term, and payment

    Pick any 3 and that determines the 4th

    interest only or repayment does not change the amount needed to pay off a debt at a rate in a time.
    • sparkey1
    • By sparkey1 6th Aug 18, 11:15 PM
    • 424 Posts
    • 181 Thanks
    sparkey1
    • #8
    • 6th Aug 18, 11:15 PM
    • #8
    • 6th Aug 18, 11:15 PM
    Paying what you are paying + £200 on interest only terms is the same as paying what you do pay + £200 on repayment.

    Lets make that clearer

    Assuming your mortgage interest only is £300 and you pay an extra £200 thats £500.

    So if you go to your lender, and say you want to pay £500 per month, you will pay the same amount, and the interest rate will be the same.

    However I would say continue doing what you are doing. If you get into financial difficulties, you could always not pay the extra until your situation improves.

    If you change to repayment you will be contracturally obliged to pay the £500. If you pay less you will default. If you ask to go interest only because of repayment issues, they probably wont allow it.

    Another thing to consider, if you are looking to get more credit, because you are contractually obliged to pay less your monthly outgoings look less. Therefore a greater chance of borrowing if you need to for something else.

    Alternatively you could use that £200 for pensions or ISAs, if you could get a better return than the interest being charged.

    So I would keep with the current arrangement of interest only.
    • ian23
    • By ian23 7th Aug 18, 10:49 PM
    • 3 Posts
    • 1 Thanks
    ian23
    • #9
    • 7th Aug 18, 10:49 PM
    • #9
    • 7th Aug 18, 10:49 PM
    Thanks for your help everyone!
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

630Posts Today

6,372Users online

Martin's Twitter
  • Ta ta... for now. This August, as I try and do every few yrs, I'm lucky enough to be taking a sabbatical. No work,? https://t.co/Xx4R3eLhFG

  • RT @lethalbrignull: @MartinSLewis I've been sitting here for a good while trying to decide my answer to this, feeling grateful for living i?

  • Early days but currently it's exactly 50 50 in liberality v democracy, with younger people more liberal, older more? https://t.co/YwJr4izuIj

  • Follow Martin