Extra payments (or not) ?

superloopy_2

Due to retire early with a small lump sum (£30k) and pension which will be taxable.

Have a similar amount outstanding on my mortgage (slightly less) with Nationwide which is fixed at 4.89% for the term.

I am allowed to make payments of up to £500 extra each month without incurring an early repayment charge.

Should I?

What level of savings return am I looking at to make it not cost-effective to make extra payments?

The money will go in a savings account otherwise, i do not require immediate access to it in the mid term.

Ta!

CLAPTON

all things being equal, you need to get 4.89% net from your savings to break even .. if you are a basic rate tax payer that means you need a savings account at 6.11% (unless an ISA of course)

superloopy_2

CLAPTON wrote: »

all things being equal, you need to get 4.89% net from your savings to break even .. if you are a basic rate tax payer that means you need a savings account at 6.11% (unless an ISA of course)

Thanks CLAPTON.

So, yes i'm a taxpayer.

Already got ISA so i think the likelihood of achieving 6.11% in todays market is unlikely (someone tell me i'm wrong, pleeeeeaaaassee) so overpayments it is until everything picks up in a couple of years time.

Could, i suppose, pay off mortgage but then i'll be savings-less for the short term, an idea which is less attractive in todays climate.

dimbo61

Your best option might well be to overpay on the mortgage by the £500 a month and try to pay off the mortgage early.
You also need to check the rules on benefits and pension credits !
If you have over £16,000 in savings you might not be entitled to any help
but if you pay off your mortgage and therefore have less to pay out each month you might be able to live off your pension and smaller ! savings.
Check how much is the early repayment charge and be careful as clearing your mortgage early and therefore having no savings can cause problems with benefits people. GOOD LUCK

tuggy

I'd say pay down the mortgage - you wont get a savings rate like that for a while I shouldnt think.

fonesolo

Hi Superloopy,
has your mortgage got a holiday period built into it? Meaning that, if you overpay your mortgage by £500 a month & suddenly found yourself in difficulties you could take a break by how much you've overpaid. This feature could be the deciding factor for you.
I can't tell you what to do, only what I would do. I would overpay on the mortgage knowing that if I found myself in trouble I could take a break from paying the mortgage or even claim back whats been overpaid. Hope this helps.