Mortgage options flexibility of overpayments at high rate or non flexible low rate?

Whiteboard

Hi could someone advise me on the following:

My mortgage as it stands now is £127,500.
My tie in ends on 01/08/06 and I have the following new product options which will tie me down for the next 2 years.

nb I have £8000 that I would like to put in to reduce the capital which I can't do before 01/08/06 otherwise penalties will be due.

1)A Flexible product where I can pay the £8,000 on 02/08/06 reducing balance to £119,500 and have the option of further overpayments as and when I am able, the rate is fixed at 5.39% for the 2 years. Monthly repayments 758 per month.

2) Fixed for 2 years at 5.15% with no flexibility of overpayments. I will not be able to inject the £8,000 but will leave it in an ISA earning 4.50%per annum tax free. Monthly repayments will be 790.

Can anyone recommend or advise which product is the cheaper product, taking into account that if product 1; capital instantly reduces due to injected 8K whereas product 2 will earn interest receivable on 8K for the 2 years which amounts to £736 for the 2 years, and then I may be able to inject the £8736 if not spent into the mortgage in 2 years time.

Thanking you in anticipation

Dan29

Is there any reason why you have to have one of these two products? Would it not be possible to remortgage with a different lender? If you did remortgage, wouldn't you just be able to take out a mortgage for £119,500 meaning that future flexibility wouldn't be a factor in making your choice?

dwsjarcmcd

In addition to Dan's comment, your new deal is effectively a new contract, therefore you could not be dictated to by your lender the way you outline. Why can't you just start your new product with a mortgage of £119,500, if you want to?
You make it sound as if your new mortgage is a continuation of your old one, which it isn't.

MortgageMamma

The abbey flexible mortgage at 5.39% fixed is an excellent product, and I think this sounds like the better option for you.

The 5.15% is actually higher in the monthly payments than the Abbey one which makes me suspect the associated fee's are higher. There really isnt enough information on your post to be able to advise the best option as a calculation needs to be done to compare for both mortgage products, the effect of paying off your £8k, to see the interest saved over this time, and work out is more or less what you would have gained on your ISA. Another comparison then needs to be drawn assuming you do not pay off the 8k and keep your money in the ISA. This needs to be considered against the monthly amount you will pay for your mortgage over the two years, taking into account fee's, early repayment charges and again the balance after 2 years under each circumstance. (i.e. ISA/pay off lump sum). Without the mortgage key facts document and knowledge of your income and level of potential overpayments over the two years the brokers on here really cant help you.

Speaking of which, have you taken professional advice? as if you have your advisor should be doing the maths for you.