Will £500 a Month Make a Difference?

champers2008

As a single parent I'd love to clear my mortgage, but at the moment I'm only paying off the interest on a £120,000 mortgage, i.e. I haven't got an endowment policy or a repayment policy in place.

I do have £500 a month spare each month which I could invest . . . any ideas how I could use these money to clear the mortgage payments?

If I didn't move mortgage provider the interest payments are due for the next 18 years.

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StuartGMC

Champers
You can find good advice in the guide here on MSE, but in essence YES £500 a month will make a difference. You have £6000 per year available. You need to advise your interest rate on the mortgage and which tax band you are in, plus confirm if you are allowed to reduce capital and any limit on this/penalties. Can you convert some to repayment?

In addition are you subject to any ERC (early redemption charge)?

Knowing the above allows you to consider what investment routes to take i.e. OP plus some aspects of savings, or savings alone etc in terms of the best balance of interest earned (less tax where applicable) vs that incurred on the mortgage.

However even a simple approach of your Cash ISA is worth considering:

If you start each tax year and fill your Cash ISA limit, presently £3600, then in 18 years alone you would have £64,800 before you consider the compound interest. With compound interest if £3600 paid in each month, and the present good rates of 6% prevailed, then this would give about £118k I think.

So you would have the funds to pay off the mortgage (just) assuming you are easily covering the interest as well and only using £3600 of the £6000 per year you have available. Any reduction in capital over that time would of course improve matters.

As I said someone will be along with more precise information to assist.

Do let us know your plans and keep us appraised of progress.

Kaz2904

To look at it easily you can view it as a £120k debt with 18 years to clear it. So (120000/18)/12 =555.55. That's how much you need to pay on top of your interest payment each month to clear it.
Or (but this is limiting your mind) (500x12) x18 =108000.
So if you never invest in anything and shove it all under your matress for 18 years, you will only be 12k short.
How you make up that 12k or £55.55 per month is up to you! Let your imagination run wild. It's £1.82 extra per day.

rlc_2

Unless the terms of your mortgage are absolutely fantastic then I would say think about converting it to an offset mortgage. Your £500 per month would attract interest at exactly the rate that you're paying in mortgage interest - and it's tax-free.

sdooley

£500 per month will mean the mortgage will be paid off in 10 years. Interest only it will never be paid off!

champers2008

Evening all, :rolleyes:

I'm not quite sure how an 'off-set' works, but is this a better / quicker option than say investing in an ISA each year.

Or would the ISA plus perhaps a savings account be a better / quicker option?

Does 10 years sound a reasonable period to clear the mortgage?

financialbliss

Hope you don't mind me jumping in...

What's not been asked so far is:

1. What is the interest rate on your mortgage?

2. Are you locked into a deal, eg 2 year, 3 or 5 year product. In fact, I'm not sure if you get lock ins on interest only mortgages

Answers could change the advice given!

Financial Bliss.

StuartGMC

Hey FB I did ask about the interest rate

Busy on this forum these days isn't it?

financialbliss

StuartGMC wrote: »

You need to advise your interest rate on the mortgage

Trouble is Stuart, you do such comprehensive replies that I missed it.

StuartGMC

LOL - you mean long winded!!

champers2008

Evening all :hello:

It's fixed until August 2009 at 5.5%. I can make up to 10% overpayments in any 12 month period?

Would it be a better plan just to stay overpaying as the quickest way to clear it?

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