Whether to Pay Off Mortgage or not.

Party_Animal

Just received my annual statement;
£22,000 owing on a repayment mortgage.
I have the money put away earning interest so that I can pay it off early.
The trouble is I'm tied into a fix at 4.75 till Dec 2007.
The cost of redemption is £ 720 which I begrudge paying.
Should I pay it off now and pay the redemption fee. I would be £270 PM better off so I could soon save the £720 back or would I be better keeping up payments so that my lump sum is growing and my mortgage reducing leaving me a nice balance? BTW should I leave some outstanding so they'll look after the deeds?
Thanks in advance.

lisyloo

What rate are you getting on the savings currently?
Do you pay tax on those savings? At what rate?
If you have a spouse what is their income tax rate?

Gut feeling at the moment is don't pay it off but I'd like to back that up with figures.

silvercar

You would be 270 per month better off LESS the interest you are getting on the money which will disappear if you use the money to pay off your mortgage.

Calculate the net interest on this amount and compare.

Party_Animal

Thanks, I think I'm getting 4% and we both pay tax at the basic rate.

lisyloo

I've done some rough calculations and I think you will be better off not paying it off.

You'd be even better off if you put £3K each into cash ISAs before April and £3K each after April (that's £12 you don't have to pay tax on).
I have mine with Halifax who I think are paying 5%.

I think you can get better than 4% with the rest of the money as well if you shop around.

silvercar

On 22,000 you are paying interest of 87.08 a month at 4.75%.

At the moment you receive savings interest of 73.33 gross at 4% equivalent to 58.66 net.

So if you paid the 22,000 off your mortgage you would save 87.08-58.66 = 28.42.

A 720 redemption charge would take over 25 months to make up for on the 28.42 monthly savings. This would take you to February 2008. So there is really little to choose.

lisyloo

So there is really little to choose.

I agree that there is little in it at the moment, but they could make more on their savings with a little effort.

Party_Animal

Thanks everyone. I'll keep it as it is for the time being. I'm quite pleasantly surprised. My maths aren't that good but I was expecting people to say pay it off now if you can.
Thanks again

kenshaz

Also having the money available gives you options

Party_Animal

lisyloo wrote:

I've done some rough calculations and I think you will be better off not paying it off.

You'd be even better off if you put £3K each into cash ISAs before April and £3K each after April (that's £12 you don't have to pay tax on).
I have mine with Halifax who I think are paying 5%.

I think you can get better than 4% with the rest of the money as well if you shop around.

Cheers Lisyloo, Isa'd up this year but will transfer £6.000 in April and look for a better deal for balance.

Thefunkygibbons

Although more risk, you could also put £4k each into an index tracker ISA on top of the cash ISA

That could well give a good return, although markets may go down as well as up