What's best, pay off or not?

Life_goes_on_3

I'm new to this, so apologies if I'm going over very old ground.

Should I pay off our interest only mortgage (6.590% - Woolwich) of £50500 now, or should I let it run its course for just under another 10 years?

Our endowment will pay out a year before the mortgage is due, but will not clear the debt. (No compensation due). The endowment plus ISAs and PEPs we have now can clear the capital owed to the Woolwich. We will still have a small amount left in savings.

I reckon on todays rates I will have about 33K to pay in interest until the end. Obviously, I know the rates will change at some point to alter this.
£195 is the fee to close the mortgage.
My wife works part time and pays standard rate of tax.

My feelings are that the 33K can continue to be paid over the period, but into savings for us. We could also start up more ISAs, up to our allowances, and where possible pay into them what we are already doing now.

I would be most grateful for some advice, it just looks to easy to be best option. Am I missing something obvious?

homer_j_3

I think the question you are posing can only be answered by yourself.

Do you want to be mortgage free or do you want to stay as you are paying interest to the woolwich?

My personal theory would be unless the savings I had were attracting a better rate of interest than the mortgage then it would be best set against the mortgage.

As you say the money you are paying out now could be used to start building pots of savings for your future.

Joe_Bloggs

Are you locked into that rate ? Can you remortgage to a lower rate ? What is your house worth and hence what equity is yours. You may well be able to remortgage below the rate on even competetive cash isas.
You can pick so much up on this site just by reading other's posts.

J_B. (Seek all of the market mortgage broker blah blah blah.)

Life_goes_on_3

Thanks Joe,

No, we're not locked in. The house is worth about 150K now, that's what the others are going for in the street.

It's also let out, I live in Forces Quarters.

Life_goes_on_3

Homer,

You're right, I would prefer to be saving for me and not the Woolwich. From what I've seen, it appears that even allowing for the rates on my savings being more favourable now, the PEP and ISA values can go down in the future meaning why take the risk when I don't have to? Thanks

Joe_Bloggs

@ Life goes on
This is where I could come unstuck. Many would agree that renting out a home is turning it to a business venture. The interest on the loans and legitimate expenses to support this venture qualify for tax relief. I could be wrong. Seek a tax adviser as well etc. More sage advise may follow.
J_B.

Ian_W

I don't think you have come unstuck Joe.

When you first asked the question, homers reply were spot on. There's little doubt in a normal residential situation you'd be better paying off the mortgage and putting the money into ISAs and other savings. Yes, you can play about trying to get a better rate then you might get fractionally more from an ISA but it's nothing to write home about and being mortgage free is great.

But those 4 little words, It's also let out, change the scenario considerably as you can claim the interest you pay as a business expense. In other words you're getting tax relief on [by the figures you've posted] your annual mortgage payments £3328pa. If you didn't claim it you'd be paying an extra £732 at basic rate [£1331 @ higher rate] in tax on your letting business, which is how you should look at it, IMO.

However I would look at remortgaging to a better rate, sure that reduces your tax relief but that is only a % of what you're actually paying. If you are on a BTL mortgage and can remortgage to say 5.5% you'd save about £500pa which could be added to your savings pot.

HTH.

Life_goes_on_3

JB & HTH,
I have been using the interest on our tax return for the letting and I have to admit I had forgotten to put it into the equation for this senario. That's exactly why I asked the question on here because I knew I'd forget something. Thanks, it makes it a little clearer now.

Ian_W

Life goes on,
HTH = Hope that helps :rotfl:

Anyway BoL [no not my initials either!;) ] whatever you decide.

Life_goes_on_3

Told you I was new to this kind if thing. But, I 'm getting the hang of it now after being embarrassed about the HTH. I got the BoL straight away.

Anyway, most grateful to everyone for the speedy responses and I am now happy to pursue what I must.