Paying a chunk off the mortgage

[IAN1967]

I have a mortgage that is split roughly 60/40 interest only and repayment, I have an endowment that is due to mature next August which hopefully will cover about 60% of the interest only part

Am about to pay off a chunk which is about 20% of the total owing, am I better paying off against the interest only or the repayment part, or wont it make any difference?

Thanks

[p1doc]

I doubt you can just pay off part of the interest only an overpayment will pay off part of your outstanding mortgage reducing both your repayment and will automatically reduce your interest as you owe less
best wait for sarnie to have his opinion as he would definitely know

[anonymous-user]

Assuming you are allowed to reduce the principle on the interest only loan....

I would pop out a spreadsheet sheet and compare future payments under the repayment loan before and after the chunk is paid. Discount back the difference using the rf rate of return the chunk currently attracts. Compare with the reduced payments on the interest only loan valued as a perpetuity using the same rate.

[IAN1967]

p1doc said:

I doubt you can just pay off part of the interest only an overpayment will pay off part of your outstanding mortgage reducing both your repayment and will automatically reduce your interest as you owe less
best wait for sarnie to have his opinion as he would definitely know

Thanks for the quick replies, when I have increased my monthly payments they have asked what part of the loan I would like the over payment to be made against and I asked for the interest only part, as I know my endowment isnt going to clear the sum completely

[p1doc]

ahh bit clearer would still try to pay off repayment aspect unless interest is high

[superlightr]

agree - pay the capital part back. will have a knock on effect on reducing the interest. win win

[supercommuter]

Capital first!

[btdk5]

Interest only is the most expensive way to borrow, in terms of overall interest paid.

Can anyone explain why they would pay off the amortising tranche first?