Tips on recovering endowment shortfall with only 4 years remaining

BOSSHOG_2

I would welcome help on working out the best way to take advantage of the low interst of 3.25% on our £64000 interest only mortgage (increased payments are allowed) while trying to recover the shortfall of approx £5000. Not sure if we should transfer to repayment, increase monthly papments or save in an isa?

Maybe there's another way also. Help...... confused !!

SmileyG_2

BOSSHOG wrote: »

I would welcome help on working out the best way to take advantage of the low interst of 3.25% on our £64000 interest only mortgage (increased payments are allowed) while trying to recover the shortfall of approx £5000. Not sure if we should transfer to repayment, increase monthly papments or save in an isa?

Maybe there's another way also. Help...... confused !!

Come and join us in the 2009 MF Wannabe thread.

http://forums.moneysavingexpert.com/showthread.html?t=1259563

The risk free way to reduce the shortfall. We are all committed to overpaying, in my case to cover an endowment shortfall.

There's even a overpayment calculator there.

SmileyG

StuartGMC

Bosshog
A few extra details may get some answers specifically, but a few questions if I may which may assist the discussion:

1) With just 4yrs remaining and the ability to overpay (which I assume reduces the capital you owe, and carries no penalty to a certain limit) what is the benefit of moving to a repayment with a fee of say £1000 to cover in addition to the £5000 (estimated?) shortfall predicted for the endowment?

2) You have presumably got a full detailed household budgeting spreadsheet so that you know your cash surplus per month against all known and planned costs, plus savings requirements (like holiday, replacement car etc) and in addition have an emergency fund of 3-6-9 months income?

3) Do you have savings which would mean you would not be eligible for means tested benefit if redundancy hits you? Presently I think this is £16k. If you have more than this then they can require you to eat into it before supporting you (galling I know to hit those of us who save!)

4) In terms of interest rates, tax-free cash ISA paying more than 3.25% should return better than putting money in as an OP, but, note (3) above in terms of savings level. Can you afford to put in the £5k as OP to the mortgage and therefore not access it?

5) Interest rate required on accounts which are taxed would need to be (I think) 4.06% if basic rate or 5.42% if higher rate tax payer.

6) Finally, will you be tempted to spend the savings even though they are "allocated" to the mortgage? If this is a risk then you may be better to OP, then if the endowment delivers more than the outstanding sum at term, you'll pocket this money at that time?

If £5k is not difficult to find in your income, then you may want to do a range of the above to balance your efforts. Personally we are overpaying and offsetting, saving in addition each month (more than we put into the mortgage) plus dropping in a minimal £220 per month into Stocks & Shares ISAs at this time to trickle feed and make a small reduction in the average price we paid as markets were rising and now see these as about 49% down... (hope to boost purchase in 2010 once MF, provided market remains flat this would be a real benefit 7-9yrs hence)

Hope to hear of your planning and subsequent progress here.

BOSSHOG_2

Thanks Stuart for your detailed information. There will only be a £50 conversion fee to repayment. The redundancy possibility is something that we should take into account. Will digest your suggestions and make a decision.

BH

StuartGMC

Bosshog, glad to be able to share some thoughts. If you haven't got a detailed household budgeting spreadsheet I can send you one, just PM me with your e-mail address.