Cash in premium bonds and pay off mortgage ?

Mousenut

I have £64,000 outstanding on a base rate + .75 deal, but also £60,000 in premium bonds (between me and the wife)

I am tempted to cash them in and clear it off, I can find the remaining £4,000 but then I would miss the prizes, we won £150 this month - and potentially a bigger one. Over the last 6 months we have won £850.

What do you think ?

RubyBish

Your return over 6 months is ~2.8% per annum.
This is a lot less than the interest you pay on your mortgage (5.5%).
Even the average premium bond winner would only 'win' 3.15% at the moment.

If I was in your position I would pay off the mortgage and then set aside an amount equivilent to your monthly repayment and start drip feeding your premium bond holdings from scratch.
If you monthly repayments are currently £500 then you would have built up £6000 in premium bonds in a years time.

freebird65

Totally agree with RubyBish - I only wish I was lucky enough to have that much in premium bonds. Also, remember that those prizes are not guaranteed - yes, you may win the big one....but then again, you could also win absolutely nothing....like me!

jenko

Do Premium Bonds increase in value at all, or do they stay the same?

So if you never win anything you are effectively losing, and inflation erodes the real value of the money?

freebird65

Jenko...that's correct.....unless you win prizes, your money just stays the same as PB's don't pay any interest.

Mousenut

Thanks for the replies, I have had PB's since 1992 (had the full amount for the last 5 years) so I know the returns, best month was £1,150 - generally we always win at least one £50, typically two.

I suppose it is the fear of cashing them in and always thinking you could have won a £5,000 or more prize - as I haven't won one of those yet in the 14 years of PBs makes you think it is your turn soon ! But I guess that is just wishful thinking !!

Interest on the mortgage at present is £286 a month, but you could say offset by £150 PB prize. I am paying at least £1,000 a month so even this way the mortgage will be paid off in 7 years (took out £150K in Nov 2001 when we moved house)

Perhaps I will have to be brave enough just to do it

Gorgeous_George

It's gambling and the only guaranteed winner is HMG.

If you are happy to gamble £3,300 per year, carry on. With average luck you should only lose £1,410 every year that you hold on to your PBs (while the mortgage is £60K+).



GG

Mado

Maybe keep 5K as an emergency cash reserve. Still leaves you a chance to win the big ONE. (only after me please....) but rationalise your mortgage.

alanobrien

Pay off the mortgage no question.
The bonds are gambling and returns are not guarenteed, the savings you make on paying off the mortgage early are guarenteed.

roswell

depending on your morgage and if your not tied into your morgage i would look at offsetting this way you keep your nest egg but the majority of your monthly payment is paying off the capital. if you want the morgage out the way you can just pay it off or with a offset you could make a massive one off payment of 60 000 and leave the remaining 4000 outstanding (still paying a monthly amount) you can then with draw any of the 60 000 if you need it