Advice needed

Fortune

Hi

I was wondering if someone could help?

I am currently taking a good look at all my finances firstly starting with my mortgage.

I have a mortgage with Abbey fixed until Jan 2011 at 4.89%. I am considering making an additional payment of about £10,000 and was wondering
1. should I make a one of payment now
2. should I make these payments stage e.g. so much per month 0r
3. should I wait to towards the end of my fixed rate and pay the lump sum in the hope of getting a better deal with my next mortgage

I hope this question makes sense and I don't sound really stupid but it is the first time I have really sat down and looked at my financial situation

Thanks

Robert_Sterling_3

Would you have to pay an Early Repayment Charge on an overpayment. ( e.g. Nationwide charge 3% which would be £300 on £10,000 )

Fortune

I am allowed to pay up to 10% of the mortgage without any penalty incurred.

Martinslovechild

Robert's correct. Abbey may have a cap on overpayments. A lot of lenders specify maximum limits for overpayments, e.g. it could be £500 per month or 10% per annum. Hopefully, your mortgage offer letter should contain more detail - if it doesn't, phone the bank and check what the limits are.

Next, check if the interest on your mortgage is calculated daily or annually. For instance, there's no point making a £10,000 payment now if your interest is calculated on December 31st as you'll effectively lose nine months' interest on the £10,000 that you could have gained elsewhere.

In a nutshell, if your interest is calculated daily then pay the money in now. If there's a monthly limit, drip-feed the cash into your overpayment pot, if instead there's an annual percentage limit, pay as much of the £10K as you can right now as I'm not aware of a single savings account that can beat 4.89%.

Martinslovechild

OK - I've just read your post which you made before I had finished typing my somewhat lengthy response.

As you're able to repay 10% without penalty, the only question you need to therefore ask is 'how is the interest calculated? daily or annually?'.

If it's daily, deposit the 10% now. If it's annually, deposit the 10% just prior to the cut-off for interest calculations (you'll need to possibly call them to determine when this is).

Robert_Sterling_3

Your question makes perfectly good sense.
I lean towards encouraging you to pay off some of the mortgage now.
However I do not know:-

How much is outstanding.
How much other rainy day money you may have in addition to the £10,000.
What your position is viz aviz Credit cards and or loans etc.

Ian_Griffiths_Halifax

Also consider whether or not you can get the money back if you need it.

It would be great to reduce the balance by £10k, but if the money is then tied up and house values drop futher, as is predicted, then you may struggle to get the money back again later if you need it.

If you are certain that you won't need the money back for at least the next 5 years, then overpaying on the mortgage is good in the long run, subject to any penalties for doing so.

Fortune

Thanks

I would love to be Martins Lovechild

Fortune

Thanks all for your quick responses. I am going to have to check if interest is charged daily or annually and then have a think. I know I passed my GCSE Maths but I can't seem to get my head around anything that involves figures percentages etc. So please bear with me and excuse my ignorance if I post a silly question now and again!!!!!!!!!!!!!!

Martinslovechild

Fortune wrote: »

Thanks

I would love to be Martins Lovechild

Looking at Ian Griffith's avatar, I wouldn't mind being Ian Griffith .

Ian_Griffiths_Halifax

Martinslovechild wrote: »

Looking at Ian Griffith's avatar, I wouldn't mind being Ian Griffith .

Thanks. I put it down to eating only the best Pork Pies, washed down with 4 pints of Guinness a day.