What should I do? Advice sought please. 27 April 2009 at 5:59PM edited 27 April 2009 at 6:01PM in Mortgage-Free Wannabe 4 replies 684 views

Matthew25_uk

Hello everyone,

My partner and I took out a mortgage with the Skipton Building Society in August 2006 at a 5 year fixed rate of 5.09%, mortgage taken was £117,500 over 25 years. Monthly mortgage payment is circa £695.

I have a secure reasonably well paid job (circa £37k) and my partner earns circa £18k. I am fortunate to be able to put approx £1k a month into savings.

I am just wondering what your advice would be in terms of our mortgage. I have been able to save £15k and half of that is in an ISA account currently earning 2% -obviously i'm paying more interest than that on the mortgage.

So what would you suggest? I was thinking of paying off some of our mortgage, say £5k this year and £5k next year (I think £5k is the maximum amount I can pay off per annum before paying early resettlement fees etc).

Look forward to hearing your advice, suggestions etc.

Many thanks for taking time to read this.

Regards

Matt

blueberrypie

Leave enough in savings to live on for a few months.

Then, from the rest - yes, overpay your mortgage as much as you can without incurring fees. There aren't really any savings products around at the minute that would pay you enough interest after tax to balance out the extra you're paying on your mortgage, so the mortgage is the best place to put the money.

It is sometimes better to overpay even if you do incur fees, because the saved interest is greater than the fee.

You might be able to overpay by a greater amount by reducing the term of your mortgage - call your lender and ask if this is possible, and if so, if there would be any fee for changing the term. The benefit of doing this is that it allows you to pay your mortgage off faster. The only downside of doing it is that you lose some flexibility because you are now committed to a larger monthly payment, but if your income is secure, this might not be a concern.

There are a number of ISAs around that are paying a better interest rate than the one you have, so you could move your ISA to another provider and make it work a bit harder for you - look at the first post on this thread (go down to the bit about cash ISAs that allow transfers in).

Matthew25_uk

Thank you blueberrypie, much appreciated.

Lokolo

Ok ISA first. This gives you tax free interest and I reckon in a few years rates will have improved to hopefully match or even be better, than mortgage rate (not sure what the rate will be after your fixed rate though).

Generally overpaying is good until you incur fees. You could always save up a lot, whilst overpaying. Then remortgage with a higher deposit. (just an idea)

dimbo61

Speak to your lender first and check how much it will cost to reduce the term ( some do it for free others charge £50/100 )
Use " whatsthecost" to work out how much extra each month it would cost use to reduce the term from say the 22 years you have left to 10/11/12/13 years.
I reduced my term from 22 to 10 yaers and my mortgage went up by £500 a month BUT! it will save me £50,000 in interest over the length of the mortgage.
Keep the savings in ISA,s as an emergency fund.
GOOD LUCK