Interest Only Mortgage - Regular Savings

Simon_Pugsley

Guys a little advice if you would.

I currently pay £978 on a repayment mortgage, i have 25 years left, with an outstanding mortgage of £143000, my house is worth roughly £180000.

I have spoke to the bank about going interest only, this would bring the payments down to £700, leaving me £278 a month after paying the interest on the mortgage.

Looking at the savings calculator on the site, i have come up with these figures.

I have no savings at present, and i can afford to put the £278 a month into a savings account, looking around there appears to be savings accounts at around 6.55%. If this is true if i did this for 25 years i would of saved in my account just short of £170000, leaving an excess of £27000 after the mortgage is paid.

Have i over simplified things to much, is there any pitfalls that i should be aware off, and risks, or your best advice would be welcome..

Simon

Simon_Pugsley

Also can someone check that my figures are correct

Thanks

Locoblade

What is the interest rate on your mortgage? The 6.55% (presumably Kaupthing?) is BEFORE TAX don't forget, so you'll only get about 5% actual return on that if a basic rate tax payer (less if higher rate payer), so unless your mortgage has a rate of less than 5%, your money is better off against the mortgage than it is in a savings account.

bengee1977

Locoblade wrote: »

What is the interest rate on your mortgage? The 6.55% (presumably Kaupthing?) is BEFORE TAX don't forget, so you'll only get about 5% actual return on that if a basic rate tax payer (less if higher rate payer), so unless your mortgage has a rate of less than 5%, your money is better off against the mortgage than it is in a savings account.

Locoblade is correct. I looked into doing this myself, but worked out it ain't worth it.

Simon_Pugsley

On that calculator on the site, it says put in the rate before tax, does it not then work out the rate you would get after tax?...

My rate is 6% at the moment, and im on basic tax level.

Is there any other way of doing it, so the return is greater, without big gambles..

Gangstabird

You could try stoozing?

Simon_Pugsley

What is the best rate of interest i can expect to get from a bank or such like for a long period of time. 25 years.

How much interest would i get after tax if the rate was 6.55%

Please excuse my ignorance and/or laziness

Thanks

hydsta

If you're going to use a savings account, use an ISA as its tax free. Also if switching to interest only dont forget about taking out appropriate life cover, level term assurance will be fine.

Its usually better to stay on a repayment mortgage as you pay less interest over the term than on an interest only. However, if that £3336/yr (£278/mth) can generate more interest for you in an ISA over 25 years instead of saving you interest on a repayment basis then it would be worth it.

Locoblade

Take 20% off for basic, so about 5.2% after tax.

hydsta

What is the best rate of interest i can expect to get from a bank or such like for a long period of time. 25 years.

The interest rates available to you will not be related to how many years you have left on your mortgage or how long you want the term to be. How much equity you have in your property, how good your credit history is, and whether you need to self-cert will all have a bearing as to what rates you would be elligible for.

Locoblade

hydsta, I think Simon is talking interest rates of savings accounts, not mortgages.

Simon, why is it you want to do it this way? Is it because you want a lump sum at the end in addition to the mortgage or because you think you might want access to those savings at some point?