Should I use savings to pay off mortgage

karenlsinging

The more I read the more confused I become!

I have a mortgage in 2 parts (due to a carry forward of 2 endowment policies from old mortgage)

Part 1 is an interest only loan of £32031
Part 2 is a repayment loan of £29766

Term remaining 11 years

I am on a discounted rate of (currently) 2.85% (discount of 1.39% off SVR) until March 2012 and payments are 327.74 a month. I am allowed to pay additional capital repayments of up to 10% of the loan for each year without an early repayment charge but if it is used to reduce the amount I owe then the interest I pay will be recalculated immediately.

Currently endowments have a projected shortfall of about £12k so I have been saving money regularly in an ISA to cover this shortfall and have about £6k saved over the last few years but the ISA (Santander Easy ISA) has poor interest rate now and I need to move it.

My questions are:

Should I move the existing ISA money into a high interest account until the mortgage deal ends and then use it all to repay the mortgage?
How do I pay additional capital of £30 a month - do I just set up a standing order or do I have to tell the lender that's what I'm doing?

Any help appreciated as my head is spinning with all this. I am trying to work out where to move my regular savings account to as my 1 year high interest deal with Barclays has ended so I have figures written all over the place and am getting nowhere fast!

DiggerUK

karenlsinging,
So long as you have a rainy day fund of about six months easy access then pay down the mortgage with all the spare.
Debts have to be got rid off sooner or later, so take advantage of the rates you have now to reduce the mortgage, it seems a given known that they will go higher in the time of your mortgage.

All you need to do is look at the interest rates and if it is best to pay off now, or leave in a savings A/C and pay later. AKA 'stoozing'.
Avoid any early payment penalties, sit back, and relax.
Once the mortgage is gone your life will be turned upside down, for the better.

Best of fortune.

karenlsinging

But there are early repayment charges of £1000's repaid x months of discount period elapsed (41 months so far) x 1.16 plus a fee which is currently £225. I can't work this out without coming up with a ridiculous sum that shows I am obviously reading something wrong!

DiggerUK

karen,
Easiest solution is to contact your provider and just say...I want to make extra/early payments, without penalties. Please advise me how to do it.
I think you will find that the big penalties come in to play if you want to clear the whole mortgage early, not just a chunk of it.

They are obliged to give you an answer.
It really is that easy, 'relax dear, it's just a mortgage'.

karenlsinging

Ha ha, great minds and all that. I was phoning them while you were typing that reply!

Don't know why I read it differently but there is NO penalty if I make additional capital repayments of up to 10% of the loan for each year and 6k I have in savings is less than 10% of what I owe! Simples!

I knew this forum would help me to clarify it!

foxblade

Also check that again at a later date karen. We were told we could only replay up to 10% which would incur a 1% penalty. Rang them recently and they said that we are now free to do what we like, as that was only for the first few years....so make sure you keep ringing them in case the status changes!