morgage advice please

goldted

i have a 3 year tracker morgage which has recently reduced greatly in repayment costs.
would i be better repaying more of my morgage off a month while i can (ie an extra £500 at 2% penalty on early repayment which comes to £10) for the next 2 years until the morgage is due to be renewed or would i be better taking out an ISA and using that money in 2 years to pay off some of the capital?
thanks for you help
Goldted

Bunny_Mad

Hello goldted.

What % is your tracker set at? Without knowing how much above the BOE rate, its hard to know if you would be better off saving it in an ISA etc.

I take it you are happy to stay on a tracker mortgage & dont intend on moving to a fixed/capped rate within the 2 years?

I just want to check that you are clear on Banking terms with regard to overpayments & early repayment charge. As you mention them both in the same sentance & they are different things. Apologies if I mis-read the message, but the terms are similar but are totally different.
Overpayments, many banks allow you to make overpayments on you mortgage some mothly, others annually. There will be no penalty applied if you choose to send in an extra £500pm. Make sure your mortgage product allows this. Also...found out this was importnant when I over paid on my mortgage. When you send in the extra payment, clearly state that 'this payment is to be set against the capital & reduce the balance', otherwise some banks put it it a 'pot' & offer you a payment holiday a few months later. :0)
Now Early repayament charges. This means if you choose to clear your mortgage in full (had a lucky lottery win...I wish!) or if you decide to move mortgage products, or even banks, your bank will impose this fee on you. Its to stop people swapping banks every few months chasing the best mortgage rate.
I hope this has explained the difference to you? :0) All the banking Jargon is enough to drive anyone loopy.

If you intend on staying put for the 2 years, then so long as the interest you make on the £500 per month is more than the intrest you would pay on the mortgage...savein an ISA.
Added to that if you are going to incurr a penalty for 'overpaying', you would be NUTS (no offence intended :0) ) To pay a penalty to pay a little extra.

I obviously do not know who you bank with, but I heard that First Direct have a Regular saver ISA. (If you have an account with them) Pay in £25- £500 per month & get 7% (FIXED, yes fixed for 12m) interest. Lloyds have one too. Click into 'SAVINGS' 'ISAS' on this site & Martin has lots listed. You dont have to do an Isa there are other regular saver accounts (in many of them you can change the amount you save monthly), But you have the added benefit of not paying any tax on your savings in an Isa.

I hope this was helpful in some way.
Good Luck.

goldted

Hi Bunny Mad. thank you for your reply and detailed information. My morgage is currently 1.8% above BOE rates (although this means little or nothing to me as banking and finances are not my strong point). We are locked into this morgage for 3 years as it was the only one we could get just as the crunch hit. Its on a buy to let property. Its working to our advantage at the moment as a tracker and the penalties to get out of it are not worth it as they will penalise us about £2500. Happy to keep it and do something with the extra money to help pay off some capital when we renew in 2 year. i am with First Direct bank so will check out their ISA's.
cheers
Goldted