Comments on: Mortgage Overpayments

By: Croydon86

Croydon86 — Thu, 01 Sep 2011 19:00:14 +0000

@Gilly – I am not sure if I have understood your question correctly. The loan on an interest-only mortgage does not have to paid only at the end of the term, it can be paid during the term, however your bank may have a penalty for doing so. Once this is paid though, lets say in 15 years, you no longer have to pay the loan as you would have already paid it. Is that what you are asking?

I believe interest-only mortgages are the way forward.

Firstly, it is tax deductible as Helen stated and you know exactly what you are paying in interest.

Secondly, most lenders allow you to make repayments up to 10% of the outstanding mortgage per year, so in theory you can make over payments every month, and it will be the equivalent of a repayment mortgage with the tax benefit. Or rather than make monthly payments, you can wait till the end of the year then make one lump some payment depending on how your year has gone, or just keep it in the bank/other investments. Interest-only mortgages give you more choice depending on your risk levels.

By: Gilly

Gilly — Thu, 01 Sep 2011 14:31:08 +0000

If I pay off my interest only mortgage earlier than its current 20year term, lets say 5 years earlier.
Will I be asked to re-pay the capital at the end of the original 20yr term or at the 15 year point when I have paid off the loan?
ie – will I have the remaining 5 years left on the original term in order to find the money to re-pay the capital or will I be expected to pay that back earlier also?

By: Lisa

Lisa — Wed, 08 Sep 2010 11:46:42 +0000

I have an Interest Only mortgage of £101000. I am currently on fixed rate which is due to expire at end of September 2010. The payment will go from approx 500 to 200 per month. If I continue to pay 500 per month. What approx will I owe at end of first year, I will be overpaying approx 300 per month = 3600. So would I in effect only owe 97400 the next year? As it is interest only do I start gaing on the first month following the overpayment?

Any advice as I dont want to overpay 3600 if I am only going to be 3000 better off?

Thanks

By: Helen

Helen — Wed, 19 May 2010 07:46:02 +0000

Does anyone know how can I weigh up the potential benefit of paying off the interest only mortgage, against losing the allowable deduction of interest payments from rental income for tax purposes? In other words is it better to keep my capital earning interest in an another account while still paying interest on the mortgage in order to get the taxable allowance?

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