Pay off mortgage or put money into a bond?

Hercs

I have a mortgage of £131k on a B-T-L, if I pay off the mortgage there is an early redemption charge of around 6k, would I be better off paying off this mortgage or putting the £137k into a one year fixed rate bond paying under 3.8%. The property with the mortgage is on a 5 year fixed with the Abbey at 5%.

financialbliss

Hi Hercs,

Quite surprised that no one has responded to this one. There’s quite a bit of information in the question, so I’ll have a stab at an answer.

Mortgage: You’ve said you’re on a fixed rate at 5%. Mortgage interest is costing you about 545 a month in interest. To beat this as a standard rate tax payer, you need to look at a savings rate of 6.25% or more.

To beat this as a higher rate tax payer, you need to look at a savings rate of 8.33% or more.

Savings: Can you use these to slow feed the mortgage, e.g. can you re-negitiate term massively downwards to ramp up payments, but avoiding an ERC or overpay while on a fix with Abbey?

What rate is your £137k at now?


Personally, I’d be inclined to not pay a 6k or more charge out of your own money, even if it does result in your mortgage being cleared, but that said you’re in a pretty good situation.

I’m sure someone else will be along shortly with their views. BTL – tax implications?

Do let us know how you proceed with this...

Financial Bliss.