Is now a good time to pay some of my MG off?

kazlouknox

Hi MS heads,
This is my first post here so be gentle.
I have been saving like a demon for the past year or so and have a relatively small mortgage.
I am able to afford my monthly payments fine but am eager to pay a lump sum off.
I was all ready to send my cheque in today but something that I watched on Location Location with good ole Phil and Kirsty last night has got me thinking....
'Save save save' was the message so now I am thinking that maybe I'll be needing that money i'll be sending in the non too distant future. I am self employed but have never had any probs for work in 8 years (touching wood).
What do you reckon?
Muchos gracias for any info advice etc.

Welshlassie

Depends on your mortgage, if you overpay are you able to get the OPs back easily enough?
What interest rate is your mortgage on, can you get a savings account that will beat this (net)?
It is a must to have access to 3-6-9 months worth of income for emergencies, especially so as you are self-employed.

kazlouknox

Hi Welshlassie and thanks for posting,
Yes I have my savings still. But I don't see the point in having any more than 10K sitting in an account that is not making as much money as the interest i'm paying on my mortgage. My mortage IR is at 5.59% - it's a discounted variable rate for 5 years and i'm in my second year.
I have my full allowance in one ISA and then a savings account at about 4% ish.
What do you reckon?

Welshlassie

I agree if you can't get a savings account with a better rate than your mortgage and at 5.59% that is unlikely net, you'd be better off lumping it off the mortgage. As you are in fixed period, check what your OP options are, some mortgages won't allow to OP during the discounted/fixed period, some only £500 per month, others only 10% per year, otherwise you face early repayment charges.
Give them a call and ask them is probably your best option.
Also make sure that you get them to pay it off the capital and not reduce your monthly payment.
Its also worth checking how oftena nd when the interest is calculated, daily is best as the OP will have an immediate effect.

kazlouknox

I rang them this morning and checked about what my OP options were. I am allowed to pay off 10% of the original Mortgage Value every 12 months. My interest is reviewed yearly i'm afraid and not until March 2009.
So, it's best to adjust the term as opposed to the monthly payments? Is this what you meant?
I had planned to have the monthly payments adjusted, it should be about £40-50 ish saving.

Welshlassie

If you can comfortably afford your current mortgage payment then I'd leave the payment where they are as this will bring down your term. (although it is your choice, OP and then accepting the monthly reductions, effectively means you are pre-paying your mortgage)
If your interest is reviewed annually then you are better off finding a high interest saving account and saving into that with the intention of lumping off the total just before the interest calculation so it has the maximum effect.
HTH

kazlouknox

Yes thanks it does.
Although i'm probably more confused now than I was at the beginning.
You recommend reducing the term and keeping payments as they are? Is this the equivalent of knocking money direct off my mortgage?
Sorry, it's so confusing...

Welshlassie

kazlouknox wrote: »

Yes thanks it does.
Although i'm probably more confused now than I was at the beginning.
You recommend reducing the term and keeping payments as they are? Is this the equivalent of knocking money direct off my mortgage? Yes
Sorry, it's so confusing...

Your regular monthly payment would then pay a larger proportion of the capital off each month and this is why the term reduces.

Put your figures into an overpayment calculator to see what difference it would make.

I like the egg one.

cold_up_north

I am in the same boat has Kazlouknox, I wish to OP my mortgage by half, my interest is reviewed yearly too in December, my fixed rate ends at the end of this month (nov), should I OP this month or will it make no difference to wait till Dec.

dimbo61

To cold up north
If your fixed rate is finishing this month then you can overpay on your mortgage or if you have a lump sum you could pay that off the mortgage.
But the big question is what will your mortgage rate be in december ? SVR with which lender ? How much do you owe and if you can afford to overpay by 50% of your old mortgage payment each month you might want to reduce your mortgage term by several years and hence save thousands of pounds in interest.
You may need to look round and see what deals are now available or with the current mortgage market wait a few months and see what the lenders come up with following the recent BOE base rate cut! GOOD LUCK

kazlouknox

Welshlassie wrote: »

Your regular monthly payment would then pay a larger proportion of the capital off each month and this is why the term reduces.

Put your figures into an overpayment calculator to see what difference it would make.

I like the egg one.

Thanks Welshlassie, I did the egg thingie and i'm gona reduce the term like you said. Will save a hefty sum there. Great!
If my interest adjustment is not until March, is it best to wait until the end of Feb or just get the cheque sent in now?