What to do with Mortgage savings?

PJGILL

I will be paying £450 less a month from 01 Dec on 3 Interest Only mortgages that i have. Should i try and pay off some capital or invest elswhere?

Any advice much appreciated.

Phil

djm1972

Good question. Were we not in the midst of a financial crisis the answer would be an obvious "pay off the capital", but at the moment i'm not so sure.

I think it partly depends on the terms of your mortgage and whether or not you're allowed unlimited draw-down of your overpayments; handy if your financial situation changes over the coming years.

However, even if you are allowed unlimited draw down, remember that money paid off the capital of a mortgage does not count as savings, and so you would not be able to recover any of that money in the event of the bank holding your mortgage failing.

If on the other hand you keep your savings separate, in a different financial institution; then I think that puts you best placed to whether whatever storm may or may not be coming our way; and whilst your mortgage may be charging slightly more than you would be earning on savings elsewhere; this is the trade-off i've chosen to make at this time!

dimbo61

Hi phil
Couple of things to take into account
1 can you overpay/ pay some of the capital off your IO mortgage( contact lender ) also any limits each month ?
2 what interest rate will you be paying in December
3 what interest rate can you get from investing in a CASH ISA or regular saver with say HALIFAX 10% saver or other savings accounts ?
4 how safe is your job ! Having over £16k in savings means no benefits !
5 have you got 6 months of income in a savings account (employed)
6 have you got 12 months of income in a savings account if (self employed)
If you mortgage is only 3.5% and you can save into a 6% cash ISA then saving
gives a better rate of return for your money. GOOD LUCK

SmileyG_2

Hi Phil

Use it to pay off as much of your mortgage(s) until you're conmfortable with the amount you have borrowed.

If interest rates hadn't gone south, you'll still have been paying out this money for no benefit at all. Now is our chance to get back at the money lenders.

SmileyG
£18,000 off the mortgage in 7 years
Target: Mortgage free in 2014

Gorgeous_George

I'd save it providing the net (after tax) savings rates are better than your mortgage rates.

Then, decide how much cash you want. I suggest one year's rent per property as a fighting fund. Once this is salted away then you can consider paying your mortgages down - but only if the rates make this a sensible option.

GG

PJGILL

thanks for the advice so far. Have just spoken to lender and there is no fee for paying extra on IO mortgage. All the extra will be taken off the capital. I am lucky that i have areasonable paying job until i am 55 if i want it so job security is not an issue.

I am hoever a higher rate tax payer and am concerned about paying too much of the capital off so that i then get stung in the future for tax.

PJGILL

Thanks still trying to decide!!!