Should I pay it off or am I missing somthing

crispy1955

I need somone elses viewpoint on this.
I have a 5yr fixed rate mortgage which end in 2011 the rate is 4.88 and there is 28k balance and approx £1800 penalty to end early.
I have a cash ISA with £23k paying 3.01% at the moment, and a savings account with £12k paying 3.38%AER, Now im going to be made redundant early part of 2010 and will recieve a lump sum of around £60k after tax plus a pension, I am a higher rate tax payer.
My question is do I use my savings and pay off the mortgage now and bank the ammount I would have payed monthly while im still in work or should I wait untill I get the lump sum. I realise I will lose the cash isa but the way rates are going my sums keep telling me to pay it off.
am I missing somthing.
thankyou.

Welshlassie

At the end of the day its your decision. How old are you? Will you be looking for a new job?
Personally I'd leave the money in the ISA and pay off the mortgage when you are made redundant using the redundancy money. Once you use your ISA money you will never be able to reclaim the tax free wrapper that it sits in.

If you can confortably pay the mortgage at the moment I'd continue to do this until 2010 see what your outstanding balance is and ask for a redemption amount and pay it off then. You will find your penalty may have come down as well (its usually % of the outstanding balanace and this will have continue to come down as you make your repayments until 2010).

Also you need to ask yourself what you are most comfortable with.

Is it guaranteed that you will get the redundancy payout, will the business you are in last that long? What would happen if you didn't get the pay out?

Nail_Lad

I'm no expert but I believe the consensus has always been if you're paying more in interest on your borrowings than you're getting on your savings then it makes sense to pay it off sooner rather than later.

The only word of caution I would offer is - is the 60k redundancy pay guaranteed, do you have it in writing? Would you get it if the company folded? (as is happening a lot). So if you can't guarantee your salary for the year then I would say no to the idea but if you're confident things will be ok then do it and get saving in the meantime.

WestonDave

Firstly on my sums, you will gain around £500 in interest a year based on your current balances by paying the lot off now, but you'd pay £1800 if you did that within the 3 years you have on your fix (assuming its end of 2011). The £500 a year saving reduces as you pay down the mortgage. On that basis alone its not worth doing.

Secondly I'm guessing from your username that you are roughly 53, and may find getting another job at your current salary harder than say someone aged 33. That being the case you may need to make best use of your ability to get a maximum (i.e. tax free) income from whatever savings you have. That to me also shouts very loudly - leave your ISA money as it is to keep that facility. In 12 months time you will have potentially £60k to try and find good savings homes for and you will only have this year and next years ISA allowances immediately available.

dimbo61

Can you overpay on your fixed rate deal ( ring your lender and ask ! )
If allowed then overpay max each month/ year and reduce the size of your mortgage.
Use some of your savings in the 3.33% savings account but make sure you will not face a penalty.
Build up your savings and clear any other debts before you are made redundant.
Be aware if you have more than £16k in savings you will get no benefits off the state, BUT if you use your savings to clear your mortgage and become mortgage free it will be easier to manage with less income.