Interest only or fix

mcilwain

In 2007 I had to take out a new mortgage due to a divorce, my building society at the time (Coventry) decided that I could only have a SVR mortgage at 7.2% which was costing me approx £1900. Being unsure of if I could afford to live in the house or if I wanted to live in the house I decided not to fix and was advised of a tracker mortgage that would cost me 0.18% over the base rate. At the time this was costing me £1150 per month which obviously was a lot more managable. During the proceeding months until now the rate has changed and is now costing me approx £150 per month (interest rate now at 0.68%) but being interest only I am not paying off any of the capital. I have started to pay money into the a Tesco's saving account which was paying more than the interest I was paying on the mortgage.

My questions are, should I continue to seek out interest rates that pay more than my mortgage interest rate (allowing for tax) and could anyone make any recommendations of what vehicles I could benefit from? also should I stick with my flexible account?

Thoughts please

Thanks

Peelerfart

Have you used your Annual ISA amount ? that will almost certainly pay more than a savings account.

redpete

how long does your current tracker have to go, what offers are you likely to get when it expires, how flexible is the mortgage for overpayments, do you want to put all the 'surplus' £1000 per month into savings /mortgage...?

On the face of it you can get better interest on various savings accounts, there are many sites (including this one) that allow you to search for the best return depending on what sort of account you want (e.g. how long can you leave the money tied up, are you looking for lump sum or regular payments in, have you used up ISA allowance, do you want post, telephone or internet accounts...)

powerwin

If you don't mind saying, who is your mortgage with, and what is your mortgage product called?

Rgds

mcilwain

powerwin wrote: »

If you don't mind saying, who is your mortgage with, and what is your mortgage product called?

Rgds

Its with the Woolwich and it's a tracker mortgage?

mcilwain

redpete wrote: »

how long does your current tracker have to go, what offers are you likely to get when it expires, how flexible is the mortgage for overpayments, do you want to put all the 'surplus' £1000 per month into savings /mortgage...?

On the face of it you can get better interest on various savings accounts, there are many sites (including this one) that allow you to search for the best return depending on what sort of account you want (e.g. how long can you leave the money tied up, are you looking for lump sum or regular payments in, have you used up ISA allowance, do you want post, telephone or internet accounts...)

The mortgage lasts for up to 15 years (my retirement age), regarding offers nothing on offer at this early stage, I have no problem with saving the £1000 per month, my thought on this was rather than pay off the mortgage it gives me a degree of flexibility should I ever require some funds. I will check with Tesco as to interest rates and then check the various offers, thanks.

mcilwain

Peelerfart wrote: »

Have you used your Annual ISA amount ? that will almost certainly pay more than a savings account.

Yes I use my yearly cash ISA allowance, thanks

Joe_Bloggs

I am clueless as regards to investments but could you use the rest of your total isa provision to buy corporate bonds or even government bonds ? I ask the question because I don't know the answer. This qualifies me as ignorant.
J_B.

opinions4u

should I continue to seek out interest rates that pay more than my mortgage interest rate (allowing for tax)

Yes. Absolutely. But be strict with yourself and ensure you mentally ringfence the funds for mortgage purposes only.

Also make sure that the interest gained doesn't have any unanticipated effects on benefits, tax credits or marginal rates of tax!

and could anyone make any recommendations of what vehicles I could benefit from? also should I stick with my flexible account?

While you could do exciting things with corporate bonds, stocks and shares, stocks and shares ISA allowances etc the safest way is to use easy access savings accounts and cash ISAs for this money. Keep you capital safe!

The reason being that if your mortgage rate moved up, and the best net savings rate you could get was suddenly less than the mortgage, you would want to move the money fairly rapidly from savings account to repay mortgage debt. I believe a mix of regular saver accounts that allow withdrawals or the AA at 3.15% gross can outdo the current Tesco rate.

One final thought: could you invest the funds via a pension scheme in to a cash fund, attract tax relief on it, and draw 25% of the fund back tax free on retirement to repay mortgage capital? One for proper discussion with an IFA that would depend on your exisitng pension arrangements and existing plans for a retirement lump sum.

Good luck.