Risks of drawing down money from v.low tracker mortgage and putting into savings?

glewis · 10 March 2009 at 2:27PM

Hi

Just want to check that I'm not missing a trick here.

Situation: I have a tracker mortgage till oct 2009 currently (base rate - 0.3%) then (base rate + 1%) , I have over paid the mortgage by over £100K and can draw down this over payment. (current base rate = 0.5%, just down from 1%)

What are the risks of taking the money out of the mortgage and putting it in an instant saving account of say 2.5%?

1. FSA protect of £50K per institution.
2. Time lag of transferring money between banks
3. Tax on the savings
4. Rates changing
Any thing I have missed?

The idea is to make money of the difference in interest rates, between the mortgage rate and the saving rate.

Thanks
G

newbienewbison · 10 March 2009 at 3:12PM

Sounds good although I would question if its worth it.... If you can pull the whole 100k and get it into a 2.5% account then you will be making 1% once you have taken the mortgage interest off(1% +0.5%). So at best over a yeat you will make £1000 and this is presuming you can keep the 2.5% savings account.

I suppose a thousand is a thousand at the end of the day but its just alot of money to be moving around - always makes me nervous!

Good luck!

Reaper · 10 March 2009 at 5:30PM

Here's an obscure risk to add to your list...

A condition of many mortgages if that the loan value does not exceed a certain proportion of the house value.

With falling house values some people are in breach of this and mortgage companies could demand lump sum payments to correct it. Here is a story about Abbey flirting with the idea.

Customers who complained were later told of a contract clause which stated Abbey could ask those borrowing more than 90% to pay back a lump sum.

Abbey says it has no plans to use the clause to force borrowers to do so. However, it did not guarantee that it would not do it in future.

So it is just possible that by taking money out of the mortgage and the house price falling in value they could demand a lump sum repayment. Highly unlikely but it may be a reason not to put the money into a fixed term savings account.

im1dful · 10 March 2009 at 6:42PM

Are you able to put the full £100k back into the mortgage when you want to or are you limited in the amount you can overpay?

If base rate increases and therefore so does your mortgage, savings rates may not increase in line. Will you be stuck paying a higher rate on the mortgage than you can get on savings because you can only repay a certain percentage of the mortgage per year?

glewis · 10 March 2009 at 11:20PM

Thanks for the additional questions to check up on.
There is no over-payment limit, the idea of an instant access saving is that if interest rates for either the mortgage or the savings make it a loss rather than a profit it would only take a few days (as the money disappears in the transfer process) to put the money back against the mortgage.

sheslookinhot · 11 March 2009 at 12:03AM

Now, what about a S&S ISA for a fgood few years.

Risks of drawing down money from v.low tracker mortgage and putting into savings?

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