Paying off Interest or Capital on a mortgage - which?

[Postdog]

OK. this is the situation. I'm going to suffer a mortgage shortfall in ten years time when it comes due. I've known this for a while, and until recently having been making overpayments on both the interest only AND capital and interest part of my mortgage.

My income has recently suffered and I had to stop that, and, because I was finding it hard, I contacted the mortgage company to ask if I could take in a lodger. They said yes, and during the conversation, we spoke of the options regarding the shortfall. To cut a long..etc, I cannot afford to re-mortgage my estimated shortfall but it was suggested I overpay as much as I could.

The thing was, she said do it only on the interest part, and not, as I was, with some on the capital and interest part (my idea was to clear that, then take another chunk to convert)

I can't see the logic of paying on the interest part though - can anyone explain it please.

[Loosehead]

More info needed, are the capital+ interest and interest only bits at different rates? Are both bits with the same company, are both parts over the same term?

[Mrs_Pegasus]

What is the capital shortfall?

[hydrogoose]

not sure i understand fully. Any overpayments you make on your mortgage go towards reducing your capital - surely?

[Postdog]

Right, I've been busy, which is why the delay.
First off, the whole mortgage is 77,000, of which about 7.000 is capital and intest, the rest just interest only. All of it is the same rate, and the shortfall could be 30,000 (when I got an addition quite a few years back, I didn't bother taking out yet another endowment because the ones I had supposedly would pay bonuses)

The mortgage has been added to at different times, and (i found out this was for audit purposes, which I didn't know) is split into 5 seperate mortgages, 2 C & I, the rest interest only.

All of them, until recently, were overpaid each month by rounding up to the nearest ten or fifteen pounds (ie, if it was for �55.16, i'd up it to �70.

[Mrs_Pegasus]

I know this is going to sound a bit mad.

Are you planning on staying in the house for the next 10 years?

Another way of thinking about it is - 10 years ago I bought a house for �40k - realistically how much is �30k going to be worth in 10 years time?

[Loosehead]

If it's all at the same rate then treat the whole lot as a repayment for 10 years so you have to repay 77000 in ten years, 47000 which should be covered by the endowment. So you have to overpay 30000 in 10 years. So if we assume a rate of 7% to be pessimistic then you have to overpay �174 per month across all the Bits so proportion that amount across the bits and add it to the interest only bits. for the capital and interest bit just recalc as interest only and then use that as part of the proportion of the whole.

[Postdog]

Well thanks for the answers. Actually, when I bought it, the idea was to make money on it by selling at some point, so that is a possibility. In fact I have been looking at that now, because I do have a large equity, and in some parts of the country I can actually sell up and buy outright. It's just a big decision, that's all.

And to be honest, overpayment is not an option at the moment. As I said, my income has sufferered, and I have toyed with the idea of a lodger to make this up, but we shall have to see.