Is anyone an expert in mortgage vs. savings maths?

colourfilm

Hello..

I've got 5.25% mortgage and £25k of savings earning about 1%.

Is it worth using the entire savings to pay off some of the mortgage? They would charge me £750 but if the interest rates stay low it might be worth it?

Thank you for your maths help..

beecher

You need to decide if you will need the money in the future - were you always going to use it for your mortgage? You could of course find a savings account with a better interest rate.

colourfilm

I won't need it in the future (my lodgers cover the mortgage) and I can't find a savings account with more than like 2% and it hardly seems worth opening account for that.

Over 2.5 years (the term left on the mortgage) the £25k would cost £3,383 (compound interest), is that correct? But at 2% interest it would earn £1400 in a savings account. Taking into account the £750 charge, im still £1233 better off over 2.5 years if my maths is correct and the interest rate doesnt go up a lot.

Is the maths correct?

loopholer

tesco are currently one of the best savings rates, have a look at the savings tables at one of the money websites e.g. moneyfacts motleyfool etc. generally speaking, paying off the mortgage will be the cheapest, mainly because savings attract tax, and mortgage rates are usually higher than savings rates. if putting it down against your mortgage attracts at £750 penalty, it may be worth considering using that money to switch to a more competative mortage product, e.g. an offset mortgage. The maths part is fairly simple, actual saving earnings are the annual savings rate *0.8, as you lose 20% to the gov. e.g. 3% gross = 0.8*3= 2.4% net. If your mortage rate is 4%, 25K of debt will cost you 0.04*25000=£1000 per year. 25K in the bank will earn you 0.024*25000=£600 per year.

colourfilm

Oh my god loopholer you ROCK. thank you so much this is exactly the maths i wanted to know!