Interest only mortgage payment query

[TimeIsAnIllusion]

I have an interest only mortgage. I have requested to overpay a lump sum off the capital balance. I've been given the account number to do this electronically. I have paid the lump sum. I phoned to check the payment had been received. It had - but was not yet applied to the account.

Feeling nervous I wished to confirm it would definitely come off the capital - the person I spoke to put me on hold and then came back and said my interest payments would be reduced. I asked again, it will come off the capital though? She started saying it doesn't work like that....
I'm totally bricking it. I did not want my capital payment used to reduce the interest only - it was supposed to pay the capital (to enable us to switch to a different provider and repayment mortgage).
So if you overpay on an interest only mortgage surely the overpayment can only come off the capital?

Just to clarify I am up to date with my regular interest payments, there's no arrears at all. The lump some was supposed to pay capital not merely get a discount on the interest payment for the duration of the mortgage by pre paying some of that in advance which is what it seemed advisor on the phone was saying.
If the money hasn't been taken off the capital as requested can I claim the money back (within 28 days)?

I'm on SVR interest only - no prepayment penalties.

We did this with our interest only mortgage and the money did come off the capital but our interest was still discounted as there was less capital outstanding. Our mortgage was for £130,000 and we paid down £25,000 so there was less outstanding to pay interest on if that makes sense?

I have to send capital overpayments (repayment mortgage though anyway) to a different reference number. Otherwise they just reduce the monthly payments by 2p a month or whatever!

When I did this though the mortgage co did sort it out by sending it back to me so I could send again to the correct reference.

Have to say it was a big ball ache though and took about 6 weeks to correct...

Hmmm .... I thought that was how interest only mort works is you are expected to pay off the capital in chunks over the term . Can't think what else it could be as if they were treating it as advance interest presumably they would say you don't have to restart payments til x date? You've probably just been unlucky talking to a less clued up member of staff. Good luck resolving this - sure ours a stress in the meantime

Thanks so much for replies, my husband says I probably just got unlucky with whom I spoke to. We've spoken since to other advisors who say it will come off the capital but I'm afraid I now have major anxiety (palpitations, dry mouth, can't sleep, loss of appetite) whereas I'm normally quite relaxed. The money was inheritance and it means a great deal because of who it was from, but also being able to reduce the capital by this amount means we can remortgage on repayment and become home owners in 20y. If there's been a cock up of this magnitude we will be looking at selling the (very small) house in 13 years and the money will be lost. A slight reduction on interest makes no odds, it's the bit off the capital that needs to go.

I was very specific when I first called and said I needed to reduce the capital owed. Then was given the account number to transfer to and person wrote a note on my account they said.

The woman that freaked me out seemed to indicate that they merely reduced the interest. As if they would take the lump amount I had paid in, divide it by the number of months left, and discount each months interest only payment by that amount. Daylight robbery! Obviously that works very well in the lenders interest.

I mean, what if I switch provider? They just keep the overpayment??

We don't have any means to pay the lump at the end of this mortgage - have been trapped for a decade, so paying this bit now and switching provider to get lower rate of interest and stretch the terms would save our home.

If it took 6 weeks to get the lump payment back we could well miss out on the deal we are supposed to be moving to.

I hope it has gone though correctly for you time

It can be bloody stressful so I feel for you I reckon your dh might be right and you spoke to a numpty who was thinking of repayment mortgage overpayments cos surely an interest only mortgage would 'expect' lump sums.

Thank you "TheGirlFromIpanema" for lending an ear, I started last week so hopeful we would be able to get our finances into order and now I'm chewing my fingers off and feeling quite poorly with worry.

In the past I have paid lump sums off the capital and, at the same time, requested that the monthly payments stay the same. It happened to be a repayment mortgage but the principle stands. Suggest you write to your mortgage provider formally explaining exactly what the payment is intended for and what you would like to happen to the payments ongoing. A letter is more reliable than phone calls.

Thank you CogitoErgoSometimes, I will take that advice and write.

time if it comes off the capital, it will also reduce the interest payments.

for example, a £100k mortgage at 5% is £5k a year. If you repay £50k of the capital, the interest will half to £2.5k a year. If you keep paying the £5k a year, you will be repaying some of the capital as well in future.

Thank you caroldecker, I did understand that, my fear was they discount the interest but don't take any off the capital!

Those maths only work if the repayment term stays the same. If in your letter you ask for the monthly payments to stay the same, you can bring forward the end date of the loan, saving yourself a lot of money

Thanks, I'm really hoping the mortgage provider has applied the money as requested and that we can be moved to a new mortgage provider asap on a much lower interest rate and repayment mortgage. If they haven't I will have to investigate how to fix it and complain!

cogito not for an interest only mortgage - you are talking about a repayment mortgage (or converting an interest only to a repayment)

So, five nail biting days later I finally have the letter in my hand which confirms the money did come off the capital as I had instructed.
In hindsight, it would have been less worrying to have sent a cheque and letter with instructions that the money was to come from the capital, and kept a copy.
Sending money electronically and giving instructions over the phone is less "belt and braces".