Part Mortgage advice please

Iiyama

Hi all
our mortgage is divided into 4 parts. Three of which we are fine with and happy with the rate term etc. The 4th part we screwed up! That part of the mortgage is £66,200. It has another ten years to run and it is interest only. On that part, we pay £275 pm. How did we screw up? Well we have both been married in the past and had endowments. We each thought (great communication eh) the other had an endowment that would cover the £66,000. We discovered that the endowments we have if we are lucky would cover approx £20000 of the £66,200! Although our NHS pension due when the mortgage ends will have a lump sum that will cover the shortfall. However, we would like to keep the lump sum.
I contacted the building society and explained the situation. They are fine because with the pension lump we will have a means of repaying it back.
I asked about reducing the hit by splitting that part of the mortgage up e.g. £36,200 remains on interest only and we convert £30,000 to repayment.
We were surprised that we would have to fine an additional £200 pm. When I worked, it out on the BBC mortgage calculator the amount was a lot less. We also worked out that if we saved £200 pm for the ten years it would give us £24,000 plus interest. So not a great gain going down the repayment route.

Are we missing something? Is there a better way to reduce the hit on the pension lump sum? Is the saving of £200 pm better than taking out the repayment?

Advice appreciated.

Trying_to_be_good

If you have about ten years left to run, an extra £200 per month is about right with an interest rate of 4% or 5%.

You need to bear in mind that interest rates are low at the moment (for savings and, if you're lucky, for your mortgage), so you wouldn't get much interest if you saved £200 per month.

I'd go for converting part to repayment, then you know that bit's paid off.

Robert_Sterling_3

Put simply you thought that as a couple your assets were higher than they really were.
Luckily your lump sum from a pension enables you to pay off your mortgage in due course.
However you would like to have a lump sum when you retire.
You can have the lump sum if you move to a repayment system for some of your mortgage.
This will cost you money.
The lump sum can not come from nowhere.

Solution:_ Spend less now by changing to a repayment mortgage.

getmore4less

Why do you need the lump sum at retirement?

Actualy it makes little difference which way you do it except for the fact that any income from a lump sum will be taxable so you may be better off building up savings in an cash ISA for the 10 years and using the pension to pay off the mortgage, this will keep the tax free status and still give you a lump sum.

Check what your projected pensions will be along with the state pension, this may get into the age allowance and increase your tax bill so having as much income tax free as possible become important.

Iiyama

getmore4less wrote: »

Why do you need the lump sum at retirement?

Actualy it makes little difference which way you do it except for the fact that any income from a lump sum will be taxable so you may be better off building up savings in an cash ISA for the 10 years and using the pension to pay off the mortgage, this will keep the tax free status and still give you a lump sum.

Check what your projected pensions will be along with the state pension, this may get into the age allowance and increase your tax bill so having as much income tax free as possible become important.

We will both have an NHS pension on retirement at 55 (mental health officer status) The lump sum is very good and we can increase it and take a lesser monthly pension if we want to. We both fancied the security of a decent lump sum behind us.

Joe_Bloggs

Is it possible to make some overpayments without penalties with the interest only scheme ? If you were able to make these then you could 'brew' your own repayment mortgage out of an interest only mortgage.
J_B.