question re mortage early repayment

denisec60

Hoping somebody may be able to advise; we're both somewhat mathematically challenged

We're currently almost two years into a 16 year term tracker mortgage of £60K. Currently paying interest only (fantastically low at the moment) due to one of us not being able to work. That situation will, hopefully, change in the not too distant future which will give us a some disposable income although we are both on a fairly low wage. Neither of us have a pension (we're aged 40 and 50), nor do we have an endowment. I'm fairly certain there are no early redemption/extra payments(?) penalty charges on our mortgage with the Chelsea. We're considering, when I'm back to work, making extra payments on our mortgage in an attempt to repay it sooner and save ourselves lots of ££. Or are we better off doing something with the money? Due to our age(s) I'm thinking starting pensions now might be a waste of time?

Appreciate these questions may be too broad for a definitive answer but would appreciate any general advice.

Thank you

redpete

It sounds like its not how to pay it off sooner that you should be worrying about ut how to pay it off at all. You a plan to pay it off when the 16 years are up (or sooner). At the moment it soinds as though you don't (unless a new job does come up, but how certain is that?)

As the interest rate is 'fantastically low' at the moment you should be doing what you can to either overpay or save the money you have left over in a savings account and keeping it to pay off the mortgage later.

As you have no lump sum due then regular savings payments have to be made. Deciding between overpaying and saving towards a lump sum should be fairly easy - just compare the amount you will save by overpaying (i.e. the mortgage interest rate) against the interest you would get on savings (after tax); whichever is higher is the one you should go for. This is not a one-off decision and needs to be reviewed at least annually.

denisec60

I perhaps should have said *very* mathematically challenged but thank you, I'll sit down and attempt to work out savings interest rates -v- saving mortgage interest by repaying earlier.

You mentioned 'worrying about how we'll pay it of at all'. Unless I'm missing something crucial (not unheard of) once we started to overpay, if we decided to do so, we'd switch it back to repayment from interest only which I think I omitted to mention previously.

getmore4less

Paying of the mortgage is part of retirement planning.

You need to start thinking long term and what you will live off.

It will depend on how much surplus income you will have over the next 16-25 years.

This means understanding what state pension you will get what benifits you could qualify for etc. (guess since these can change)

Mortgage is low rate, how low?

It might be worth saving a bit to have a backup fund but too much could impact benifits now and in the future.

Pensions the same you could end up just replacing something like pension credits so would be better off just paying of the mortgage.

Not sure how cash ISA's are counted for benifits, they don't count towards tax so can be better than a pension for some people.

redpete

denisec60 wrote: »

I perhaps should have said *very* mathematically challenged but thank you, I'll sit down and attempt to work out savings interest rates -v- saving mortgage interest by repaying earlier.

There's no maths involved. Just compare the two interest rates and see which is larger. If you save in an ISA (or other tax-free scheme) then you don't need to take tax into account either. (gm4l has of course pointed out that it is not just a simple comarison - there might be other reasons why savings are not appropriate.)

You mentioned 'worrying about how we'll pay it of at all'. Unless I'm missing something crucial (not unheard of) once we started to overpay, if we decided to do so, we'd switch it back to repayment from interest only which I think I omitted to mention previously.

It's just that overpaying or switching back to repayment seems to depend on you both working, if whatever meant that one of you had to stop doesn't change then this plan won't work.

beecher2

denisec60 wrote: »

You mentioned 'worrying about how we'll pay it of at all'. Unless I'm missing something crucial (not unheard of) once we started to overpay, if we decided to do so, we'd switch it back to repayment from interest only which I think I omitted to mention previously.

You need to make a definite plan for paying the mortgage off before you retire, particularly as you have no pension provision other than the state pension. It isn't so much about saving money, as it is about ensuring your mortgage can be paid off.

denisec60

Thank you for all your comments, we'll sit and have a think. I'll freely admit that financial matters/planning are definitely not my strongpoint.

It was initally ill health which precluded me from working and then the very difficult job market over the last year or so and why we, soon after taking the mortgage, were forced to make interest only payments. Happily that situation is about to change.

Without digging out buried paperwork I don't know the interest rate. All I know is we're paying £70/month. Obviously, we'll switch back to repayment with two salaries, it was just a question of what best to do with any surplus income given our situation/ages.

de1amo

when you say 16 year tracker do you in fact mean a standard variable rate at a low rate or are you on a fixed in deal?-i have a svr of 2pc with a smular lender to the chelsea but know they can raise it even without the boe raising rates.knowing the rate puts into prospective what you think is low!i pay 92 pounds for 55k interest only