Reduce Mortgage or Fixed Rate Bond?

chunky02

I know this seems obvious which is why I am posting here so if there is a down side someone will point it out to me!

Should I put £10000 in the post office fixed rate 1 year bond at 3.3% which will earn me £330 interest or pay off £10000 of my mortgage which will reduce my payments by approx £60 per month so saving £720 approx per year.

The figures seem to make it onvious I should pay off some of the mortgage but am I overlooking anything?

VIGILANT22

the lump sum on the mortage could reduce the term instead of reducing monthly payments..have you thot about that?

chunky02

I have but we are about to have our second child at the end of next month so thought that saving money short term was more benficial to us at the moment than reducing the term? We could look at reducing the term when we remortgage next when finances have restabilised a bit, if they ever do with children!

opinions4u

What rate are you paying on the mortgage?

Is it fixed or variable?

Do you have a contingency fund of around 3-6 months net pay?

Do you (and any partner) have a cash ISA?

Do you both pay income tax?

Getting a grasp on the rate value of saving v debt repayment while ensuring you can cope for a few months in the case of illness or redundancy is important before suggesting a course of action.

Should I put £10000 in the post office fixed rate 1 year bond at 3.3% which will earn me £330 interest

Minus tax, if you're a taxpayer. Could you both use ISA allowances to get a better return?

or pay off £10000 of my mortgage which will reduce my payments by approx £60 per month so saving £720 approx per year.

The payment reduction may also allow for an element of capital as well as interest. Comparing interest on mortgage v savings is the important thing. Not the monthly payments.

The figures seem to make it onvious I should pay off some of the mortgage but am I overlooking anything?

How would you pay the mortgage if your income stopped?

chunky02

Fixed 4.39 for the next 3 years, owe £120K, house value £170K

Both pay tax, both have isas that we fill each year.

we are fine for paying the mortagage if income stopped, this £10000 is money we came into (not in a good way unfotunately) which is on top of what we had already put in place and budgeted for to ensure we were financially stable (as much as you can try to guarantee and foresee) with the children coming along.