Should we pay a lump sum now or are we mad?!

pamchapman

Hi
We are in a dilema. We have £234k left and are coming to the end of our 5 year fixed at 5.7% in November. We want to come out now and pay the penalty of approx £700 as we think it will benefit us in the long run. We are thinking of doing a tracker rate of 3.29% for 3 years (knowing it could go up or down). But for arguments sake let's use it as a calculation for the remaining 9.85years.

If we put £65k on it now then only have £169k left at 3.29% or do we put the £65k into a bond which in the next 5 years will possibly come out at £85k and then put the £85k on it. We have done so many calculations we are going mad.

This is how we're working it out. If we put it on now and keep paying the same value of repayments (approx £2580) it will only cost us £17,500k total in interest and reduce it to 6 years. However if we leave it as it is for 5 years and then put say £85k on it then we will have paid approx £30k in interest in those 5 years alone and still have 18 months payments plus £1k interest.

We think it's a no brainer and should whack it on now but everyone keeps saying we're mad and should do it the other way. Are we both missing something sooo obvious?!?!?

ailuro2

It all comes down to interest rates...

If you can find a bond that will pay out a higher interest rate (AFTER TAX) than your moertgage then put the 65K in a bond/other savings vessel.

An extra 2% interest on 234K outstanding balance will more than pay the £700 transfer fee for your mortgage - is that taking into account mortgage exit fees, arrangement fees for the new mortgage?

http://new.egg.com/visitor/0,2388,3_54988--View_1028,00.html is a great calculator that lets you put in different lump sums and overpayments to forecast how much you could benefit by overpaying.

ailuro2

http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings

here's MArtin's article on this subject.:money: