Pay off a £76k mortgage or save/invest for 4 years?

dimbo61

Do NOT pay any ERC to HSBC

dimbo61

Having a £76k mortgage over 4 years would mean a monthly mortgage payment of £1715 plus 20% overpayment £342 giving you a total payment of £2057 a month.
After 12 months you would have reduced the mortgage to £54k approx
Over 3 years the new mortgage payment would be £1594 plus 20% overpayment £320 giving you a total payment of £1914 a month.And so on !
Drip feeding the extra mortgage payment into the mortgage each month from savings held in your wife,s name with the best instant access account you can find.
Over 17 years you would pay £28k in interest
over 4 years you would pay £6k in interest

stevwarn

dimbo61 wrote: »

Having a £76k mortgage over 4 years would mean a monthly mortgage payment of £1715 plus 20% overpayment £342 giving you a total payment of £2057 a month.
After 12 months you would have reduced the mortgage to £54k approx
Over 3 years the new mortgage payment would be £1594 plus 20% overpayment £320 giving you a total payment of £1914 a month.And so on !
Drip feeding the extra mortgage payment into the mortgage each month from savings held in your wife,s name with the best instant access account you can find.
Over 17 years you would pay £28k in interest
over 4 years you would pay £6k in interest

Your advice is clear and very good, thank you!:T

Although I am still tempted to pay the £3k ERC and save the hassle, but I know it is the wrong to do so. I guess I need to arrange an appointment with the mortgage advisor at HSBC to discuss shortening my term, hopefully it won't cost. Like I said earlier the HSBC advisor was unsure that shortening my term and overpaying by 20% will incur an ERC if I pay off the mortgage under 5 years. How do I find out?

jamesd

You have to ask them about the ERC.

It doesn't make a lot of sense to overpay if you're willing to use investments. Way too many investment options available that pay more than 3.99% tax free inside a stocks and shares ISA. Routine corporate bond funds are paying anything from three to six percent and high yield ones 8% and more.

Without using investments it's not currently possible to beat 3.99% as a basic rate or higher tax payer.

A big question here is whether you want to treat the mortgage as an isolated product or have an integrated approach to your financial planning that factors in the value of increasing investments to do things like get a higher return or retire sooner. Unless you're extremely risk-averse, paying off the mortgage is probably a poor choice when looking at an integrated financial picture. If you are extremely risk-averse it's the thing to do.

dimbo61

Its horses for courses if you know what I mean
You need to speak to HSBC about the ERC if you reduce the term to 5 years and then op by the 20% on top but HSBC will simply reduce the payments to take into account the smaller balance each year.
It is simpler to just go in and pay off the mortgage and the ERC and have done with it but you could save even more if you are smart with YOUR money
No very little about corporate bonds or stocks and bonds so hope they do well for you if you invest in them

stevwarn

dimbo61 wrote: »

Its horses for courses if you know what I mean
You need to speak to HSBC about the ERC if you reduce the term to 5 years and then op by the 20% on top but HSBC will simply reduce the payments to take into account the smaller balance each year.
It is simpler to just go in and pay off the mortgage and the ERC and have done with it but you could save even more if you are smart with YOUR money
No very little about corporate bonds or stocks and bonds so hope they do well for you if you invest in them

My only concern is that if I follow this advice and reduce the term + overpay, my mortgage will be paid off within approx 3.5 years and therefore may breach the early repayment rules i.e. within the fixed rate period.

stevwarn

Chapter two of this saga.

HSBC will not budge, they will not waive the ERC or allow me to shorten the term, to the same as the fixed deal, to increase the repayment as they stated this will incur ERC, which is approx £2k. I also spoke to a Financial Advisor who was just interested in making money selling me share funds. Therefore, I am overpaying the max allowed which is £100 p/m and have the money in my wife’s name (as she is not a taxpayer) in accounts averaging 3%.

With the savings accounts currently offering circa 3% and my mortgage rate being 3.99%, am I being foolish not paying off the mortgage and incurring the ERC?

Any advice will be gratefully received.

dimbo61

The gap between what you wife earns this year and what you pay on the mortgage is only 1% and who is to say in wont be the other way round next year!
In the mean time you have £75K earning interest if you see a bigger property you want to buy.
You are already OP,s my the max allowed so sit tight and dont worry

Jonbvn

speric07 wrote: »

I thought that when you overpay your monthly repayments are recalculated? With my tracker that happens (with HSBC).

The monthly payment cab reduce, or the term can reduce.

Jonbvn

stevwarn wrote: »

With the savings accounts currently offering circa 3% and my mortgage rate being 3.99%, am I being foolish not paying off the mortgage and incurring the ERC?

No!

My calculations show you will pay £12887 in interest on the mortgage, while interest on £75k @ 3.00% over 5 years will earn you £11945 in interest. The difference between the two is less than your ERC.

The other thing you have to consider is that interest rates are very unlikely to stay low for such a long period, and you may get a better return on your savings in the future, whilst your mortgage is fixed.