nest or nest egg?

milkbar

hello all, ive got, i suppose and good problem, i have been given my inheritance now by my parents. i have approx £40000 on my mortgage and the gift will just about cover that. mortgage interest rate is fixed at 6%, but if i pay it off i will be charged a penalty. i think it works out about £1500. should i wait for two years then pay all mortagae off then when penalty goes or would it be still more benificial to get the fine and pay mortgage now? i already have 6 months savings put aside so can used all the inheritance.
any help appreciated
... sorry just realised posted in wrong section, dont know how to move!?!?

Senior_Paper_Monitor

IF (24 x monthly mortgage) is < (((£40,000 x 0.025 *) x 2) + £1500)
then stay on mortgage until end of deal/penalty period.


* - a swift guess at what you will earn in interest (after tax please check and amend)


Using my figures ... is your mortgage more than £145 per month (which I am sure it will be) ... if so, settle it ASAP (just check my forecast interest earnings).


Ooops I'm losing the plot - forgot about using any of the overpayment allowed as an option - you may be able to do 2 lots of 10% (depending upon the specific agreement - actual percentages, based on original or remaining loan etc and dates) - all described below by people who were much more diligent in answerin g thann me.

beecher2

Are you allowed to make an overpayment? If you are, then pay the £4,000 or whatever you're allowed to first, and then you'll only pay a fee on the remaining balance.

Another alternative is to change your term to tie in with when your fix ends.

milkbar

thanks SPM, pay £260 per month on mortgage, was thinking if put some of the money in kids bank account and /or isa that would be benificial tell penalty time runs out

milkbar

can pay approx £1400 overpayment, beecher2 thats made me think i could over pay whats allowed this year then do same on jan 1st 2011 then pay rest off and get penalised on that

beecher2

milkbar wrote: »

can pay approx £1400 overpayment, beecher2 thats made me think i could over pay whats allowed this year then do same on jan 1st 2011 then pay rest off and get penalised on that

Changing the term of your mortgage would let you overpay by more - phone them up and ask. I thought you were only allowed to overpay once in any rolling 12 months, rather than calendar year so check what your lender says about that.

getmore4less

What are you going to do with the mortgage payments once paid off.?

To do the sums the interest rate on the mortgage is needed (duh OK 6%)
max overpayments per year or per month.

£1500 on £40k is a 3.75% penalty is that correct?

How many unused ISA allowances do you have?

when exactly does the fixed rate penalty period end?

milkbar

i was thinking of keep making the mortgage payment into a savings account if pay off mortgage, maybe drip feed into investment trust. i have in past over payed approx £1500 which was close to max for year, dont recall what % of mortgage it was i could pay though.
i have put nothing in isa this year for me or my wife.
fix rate finishes in 2012.

getmore4less

Based on no overpayments allowed.

£40k 2y 6% penalty £1500 3.75%

cash 40k
regular payment £260pm

Reduce term to 2 years £1773
extra is £1513pm
Average savings pot(2*40000 - 24*1513)/2 = £21844 left at end is £3688

Pay off £40k actually pay off £38554 penalty £1446
£1446 over 2years £65pm
savings are £195pm average savings is (24*195)/2 £2340 left at end is £4680

So for equality savings rate(Sr) needs to be
21844*2*Sr + £3688 == 2340*2*Sr + £4680
Sr = 2.54%
less than that then overpay

milkbar

thanks getmore4less, took a couple of reads but that made sense. will speak to mortgage provider (cov building soc) first and take it from there.

thanks everyone for taking time and effort to reply.