HELP!..Common question for Mortgage holders....

Blade3

An answer to the questions below will help many many of us in same situation out there so please answer, all replies comments welcome

We have a Combined % Interest Only & Repayment Mortgage with
7 years left

Outstanding Balance = £42.5k of which
% Interest Only = £29.5k
Repayment = £13k

Current % Rate = 0.79%
Current Monthly Repayment = £170

If we were to make extra additional injections into the mortgage, say for example of £10k ...

Of the Outstanding Balance ..
Which part is best for us to pay off first?
Which part is costing us more to borrow ?
Which part is best for us to put in extra injections into ?, the % Interest only part ? or Repayment part ?
Which part would reduce the Monthly Repayment more ?

thanks everyone & much appreciated

opinions4u

Why not stick the money in to an easy access savings account and leave it there until the mortgage rate rises above the net savings rate.

For example, stick £10k in to an AA savings account at 3.15% gross (2.52% net) and it will generate £252 in interest after tax. Pay it off the mortgage and it will save you £79 in interest.

So don't pay it off the mortgage!

redpete

You say that both parts of the mortgage are on 0.79% interest. So £100 outstanding on the interest-only part is costing you £0.79 per year and £100 outstanding on the repayment part is costing you £0.79 per year.

So it doesn't matter which part of the mortgage you pay off. (This ignores any overpayment condiitions in the Ts&Cs which you haven't mentioned, e.g. the overpayments might be applied in a particular way by the lender, or there might be penalties on early payments.)

However, the earlier advice about getting significantly more than 0.79% from savings accounts does make a lot of sense. If I was in your position I would almost certainly treat the mortgage as essentially free money and put any spare cash into a savings account until it was time to pay off the mortgge (or until the relative interest rates changed), making sure that I didn't use it for anything else. Or I'd possibly use some of it on matched betting to get a much better return than any savings account - but there are lots of health warnings on this one.