early payment via further advance account

lecoq

Hi,

I have an idea to pay my mortgage off abit earlier,but not entirely sure if i have done the figures ok.

I have approx 40k mortgage left over thge remaining 9 years, and a further advance of approx 4.5k

The main mortgage is fixed at 5.44% for a remaining 2.5 years, the further advance is at 2.5 %.

I applied for a pot from NWBS of 30k to which i withdrew the 5k but already payed off 0.5k hence the 4.5 left

I was wondering if it would be beneficial to borrow more on the FA and overpay on the main mortgage by max allowed at £500.00 a month and how long this would reduce my mortgage and/or save me money, I know that interest rates may go up but would like to get an idea of when it would become unecomomical

Hope anyone can help regards
Lecoq

dimbo61

So you took a £5K further advance and intend to overpay by £500 a month !
Where is the £4,500 now ( what interest rate are you getting and is that TAX free?)
The mortgage company will not allow you to take out £30k and use that money to reduce your mortgage without an ERC.
Can you afford to overpay £500 a month from your income ?
If Nationwide will allow you to take out £5/6K each year and OP the mortgage each month by £500 then it will save you money PROVIDED the rest of the FA is earning more than 2.5% TAX free.
A lot of hard work for little return

lecoq

The 4.5k has been spent on home improvements.

So i owe in total 44.5k
40 of which is paid at 5.44%
4.5 of which is paid at 2.5%

I can draw any amount down from the 25k left in the pot, that NWBS have set aside if i want it @ 2.5%

I can overpay without penalties £500.00 pound every month on the 40k

just wondered if it would be worth drawing down as you say approx 6k a year at 2.5% (variable) and paying 500 a month off the 40k at 5.44%, I imagine the money won't earn much interest as it would require regular access

I only have to draw it down and set up DD and it is done

as i have only two years left on the fixed rate i thought the interest rate should not rise too much in that time, and once it ends i can shop around again for the best deal

Cheers
lecoq

dimbo61

Looked on moneysupermarket and a few instant access accounts at 2.81% before tax so might match your 2.5% mortgage and like you said you can OP £500 a month and save 5.44% so why not give it a try and take out £6K

getmore4less

40k @ 5.44% fixed for 2.5 years 9 year term

Whats the follow on rate for this?

Max overpayment without penalty £500pm

What are the penalties for higher overpayment?

£30k pot at 2.5% (£4.5k used) (assume same 9year term)

is this a tracker or a SVR?
can you draw this in samll quantities?
whats you tax rate on savings? (need 3.125% for 20% or 4.17% if 40%
Have you used your ISA allowance yet?


Not checked for the best but somethings that will work.
ISA :
A few over 2.5% so worth looking at instant access(in case rates move against you, some are trackers so might stay ahead)

regular savings:
Barclays 3.25% (max 250pm)
might be others

The £500pm off the main debt is probably worth it.

Another angle might be to reduce the term on the £40k to increase the normal payments and fund this from the £25.5k you have.

£40k @ 5.44 9 years is £470pm
After 2.5years £30,745.91
£500pm extra £14,716.88 (£500*30 £15000 transfered to 2.5%)

Reduce term to 5 years regular payment is £763
After 2.5years £21,352.90 ( £300*30 9k transfered)
£500pm extra £5,323.87 ( £24k total transfered)

NOTE this does not take account of the interest/payments on the 2.5% getting bigger so watch cash flow.

The key to your question is the answer to this.

If you were all on 5.44% fix for 2.5 years would you switch to 2.5% variable now?

Do you have extra spare income money and an emegency fund?
This will skew the best options for you.

lecoq

Cheerrs,

Think i will draw the 6k out and put in an ISA, wifes got one but not me!

And set up DD to pay 500 a month off the main mortgage, do the first year and see how it works out , with rates etc

I have spare income, although this is usually used on entertainment etc, and an emergency fund (1 years mortgage)

not sure how well this will work out , suppose will only know at the end of the first year.

Thanks for the info and reassurance