Should I do this and pay off the mortage?

Tom13

Hi!
Can someone please help as I am confused. Would I be better of to pay off the mortgage as when I am doing the calculations I am not better off.

Our outstanding mortgage is £53000, I am on repayment mortgage which has 11 years left but for next 7 years I am on fixed interest of 4.67%.

Our current savings is £25000 (15000 is with Maxi isa and the longer I leave this the better it grows, the other £10000 is in cash isa)
Our endowement policy has 11 years to go, it was originally to mature and give me £65000, it is not perfoming as good now but may mature to give me £50000 (I am assuming).

We currently save £4800 per year.(£2400 per year goes into maxi isa and £2400 a year goes into cash isa)

If I use my current savings of £25000, sell my endowement and assume I get £28000 I would be able to pay off the mortgage.

If I pay off the mortgage I would be able to save more as no mortgage and no endowement to pay. I would be able to save £12000 per year. Over the 11 years this would be £132000.

If I don't pay off the mortgage, after 11 years I would have the £25000 that I have saved now and would be able to save another £53000, I would also have the endowement maturing and may give me £50000. This is a total of £128000.

Summary:-
As you can see from my calculation if I pay of the mortgage I am not that much better off after 11 years..am I miscalculating?? The other thing is that I may get more from the endowement and I may also get a better return from maxi isa.
What should I do..???

Please let me know your thoughts and comments.

Thanks.
Tom

FeelingSkint_2

Hi Mate,

I'm no expert in these matters - but these are my thoughst on the matter.

This is the way i see it. - Assuming your Interest rate stays at 4.75 for the term and you are only paying interest on the mortgage.

Monthly Interest...........................................................- £209.79
Yearly Interest......................................................... - £2,517.48
Year Interest (Assuming no change to interest)....- £27,692.28 - THAT'S ALLOT OF INTEREST

If you think you can make more them 27,692.28 by putting youe monay into saving over the term on 11 years then keep your current payment/Saving plan going.

However, if you are not then i would pay the whole lot off and save.

I was in a similor situation to you, i owed about 50K on 4.99%. After considereing it I have decided to pay the whole lot off and am now in the process of doing so. Should be all sorted within the next month...Fingers crossed.

The most importatnt thing to consider is -
How much interest you are paying and if you can get more interest by saving. And i think the answer will problaly be.

That you will pay more interest then you can get...

So then the decision becomes simple pay off the Mortgage.

Hope this helps.

Tom13

Thanks for your reply. I am still struggling to decide.
Best of luck with your situation

I havent't yet taken into account the penalty I would have to pay in settling the mortgage..any idea what percentage this usually is??

Anymore thoughts on my thread??

Many Thanks again.
Tom

dwsjarcmcd

Tom13 wrote: »

Thanks for your reply. I am still struggling to decide.
Best of luck with your situation

I havent't yet taken into account the penalty I would have to pay in settling the mortgage..any idea what percentage this usually is??

Anymore thoughts on my thread??

Many Thanks again.
Tom

Penalities usually range from 1% to 4%, with your being a longer term fix, most likely to be at the higher end of that scale.

Peronally, I would take a hybrid approach and there are a number of options. Firstly, I wouldn't use all my savings to repay the loan as you do need some rainy day money. I would be tempted to ask the lender if you can repay some of the capital - about 10% is fairly common. Go and see an IFA who can advise whether you should sell your endowment or not. If it is, drip feed that into your mortgage over the next few years to reduce your term. Put the rest in a 1 year fixed rate bond and do this until that money is used up. Save the endowment monthly premium somewhere, either by increasing your maxi or cash ISA contribution.

That's where I would start, but you really need advice on what to do with the endowment.

Tom13

dwsjarcmcd wrote: »

Penalities usually range from 1% to 4%, with your being a longer term fix, most likely to be at the higher end of that scale.

Peronally, I would take a hybrid approach and there are a number of options. Firstly, I wouldn't use all my savings to repay the loan as you do need some rainy day money. I would be tempted to ask the lender if you can repay some of the capital - about 10% is fairly common. Go and see an IFA who can advise whether you should sell your endowment or not. If it is, drip feed that into your mortgage over the next few years to reduce your term. Put the rest in a 1 year fixed rate bond and do this until that money is used up. Save the endowment monthly premium somewhere, either by increasing your maxi or cash ISA contribution.

That's where I would start, but you really need advice on what to do with the endowment.

Thanks for the reply.
Was reading on another thread about being able to surrender the endowement policy. Didn't know you could do that.

Since the endowement is not going to perform then may as well surrender or sell it and use the money.

I can see what you mean about having money for a rainy day but paying off the mortgage alone would be a big thing, would it not. I can then start saving and not constantly have this fear of loosing my job

dwsjarcmcd

Before you consider surrendering your endowment, speak to an IFA. You may be able to sell it and get abot 10% to 30% more than the surrender value, or it may be worth more retaining it. It does depend on what type of endowment and who the company is.