Pay a lump sum off my mortgage or wait a year and a half?

je123

Hi Money savers I need some advice on this please:-

I have a fixed rate mortgage which ends in July 2011 with an outstanding balance of £91,500 at the moment. The interest rate is 4.99%. I have around £27,000 which I can pay off the mortgage directly (about £11,000 of this is in poorly paid ISA's). The only issue is that by Early repayment charge is set at 2% until July 2011.

My questions are:
1) would I be better off in the long term to pay off this lump sum now, as my money is not earning any decent interest (2% on the top one)?
2) or should I wait until July 2011 to pay this off?

I know the early repayment charge would have to be paid, but would this not be off set by the interest I would save by paying off almost a third of my mortgage?

I have tried to work this out, and I think I would be better off paying it now, even though I would have to pay the ERC. Any help would be great.

Thanks

Jane
:j

Ps, I can only overpay on my mortgage £499 a month which I have been doing.

Cannon_Fodder

Keep enough cash to form a 6 month emergency fund, moving the ISAs to better products - you should find up to 3.5% around.

Pay the rest off the mortgage.

getmore4less

How much surplus do you have each month from income?

What is the full term?

How much does you lender charge to change term?

20% or 40% tax payer

1 or 2 ISA allowances?

je123

Hi getmore4less

Please see the following:-
How much surplus do you have each month from income? - £600

What is the full term? - 30 years (done 3.5 years)

How much does you lender charge to change term? not sure

20% or 40% tax payer - 20%

1 or 2 ISA allowances? - 1

motch

Might be worth looking into reducing term (if your lender allows and doesn't charge for this) from 27 years down to say 10 or even lower (if you're looking to be mortgage free quicker) feeding your savings into the extra payments

getmore4less

je123 wrote: »

Hi getmore4less

Please see the following:-
How much surplus do you have each month from income? - £600

What is the full term? - 30 years (done 3.5 years)

How much does you lender charge to change term? not sure

20% or 40% tax payer - 20%

1 or 2 ISA allowances? - 1

I would keep the current ISA and look for a better rate.
It is a use or loose.

If you can't find 3%+ for the current ISA pot then you could cash some in and just use it for this years since you only have £100pm surplus(after overpayments) this will not fill the current allowances.

Have you used this years allowance A&L have 3.5%
Keep £5100 aside for next(april) years ISA as well.

this should be better than taking the 2% hit.

Review a reduction in term to increase payments you might want to do this short term to use up the cash rather than take the 2% hit on any cash left after the ISAs, then extend again later.

To be on the saver side increacing payments by £100 still gives the optional £500 overpayment and just take the 2% hit on any current savings.

MOnhtly savers are often good rates but the tax hit takes then under that required even with 2% penalty.