Comments on: Mortgage Overpayments

By: timmy

timmy — Wed, 27 Jan 2010 15:08:43 +0000

We owe £50k on a interst only mortgage,we have 20 months left on on 5yr fixed rate @ 5.18%, i can now afford to make overpaymets of £500 per month, would you do this or save as we have been into ISA’s

By: The Landlord

The Landlord — Mon, 23 Mar 2009 11:13:56 +0000

Hey Kelvin,

That’s how much you’ll save over the period of the remaining term.

The calculation is a little complicated, because each year the amount you pay on interest changes, as you’re reducing the amount you’re paying interest on.

The beauty about overpayments is that they’re flexable. You don’t have to make overpayments if you don’t want to.

Perhaps this mortgage overpayment calculator maybe more uselful..

By: Kelvin

Kelvin — Mon, 23 Mar 2009 11:06:10 +0000

I am a little bit confused.
In the example above is gives how much you need to over pay, but it doesn’t say how long for.

Is it for the remaining term? Is it one year that will get you those savings? How does it work?

By: Jools

Jools — Thu, 19 Mar 2009 16:42:03 +0000

You really need to speak with an IFA aboiut this. I would be inclined to make overpayments on the capital as opposed to the interest as you are actually paying off some of the balance of a property that you will eventually own.

Complex field that needs specialist advice me thinks!

By: Kate

Kate — Wed, 18 Mar 2009 21:16:16 +0000

We have roughly half our mortgage interest only (with an endowment which will hopefully repay at least some of it in the end!)and half repayment. They both have 14 years left to run. We are in a position to overpay but are unsure whether it makes any difference to overpay the interest only part or the repayment part? Does anyone know whether thre is a difference?

By: The Landlord

The Landlord — Sat, 29 Dec 2007 19:29:24 +0000

Hey,

Overpayments on an interest-only mortgage will reduce the loan balance. The more you reduce, the less interest you will pay.

The amount you pay won’t change, but it will reflect on the outstanding balance you’re left with when the mortgage expires. You don’t pay interest on an amount that doesn’t exist. The lender will calculate your payments. For example, If my interest-only payments are Â£700 per month, but I make overpayments of Â£800 per month, i’m only reducing my balance by Â£100 after the first month; on the following month I will be paying less interest; say Â£110 to reduce the balance, and Â£690 towards interest. That pattern continues throughout. Hope that makes better sense.

Kind regards

By: CautiousFTB

CautiousFTB — Sat, 29 Dec 2007 19:07:16 +0000

So are you saying that with an interest only mortgage overpayments reduce both the capital and the monthly repayments of the interest?

I’m quite confused by this as I have been reading the details of a key facts mortgage illustration for a interest only mortgage and have noticed under the overpayments section, that it states ‘Your monthly repayment will remain the same’.

How can this be? Surely they can not charge you interest on an amount that doesn’t exist after you have paid of a lump sum?