Earliest Payoff, What should I be aiming for

Sir_Peter

Hi
I have just got a new mortage out on a house. The value of the property is £250K and our morgage is £228 today. Our rate is .75+br. I would liek to know what the earliest time we could pay this off, ie what time frame should we be aiming for?

The wife and I both work full time and earn about £50k between us, we don't have any kids, no Credit Card, no car or transport costs, and live a quite life, not many expenses. We are hoping to have the house paid off ASAP so we can then start to enjoy the nicer things in life, but feel the house at this stage should be our top goal.

Any guesses would be recieved with interest.

Arkad

Obviously, you need to work within the constraints of your mortgage deal. For example, a lot of mortgages cap the amount of capital that you can pay off each year.

I assume you mean that the outstanding capital on your mortgage is £228'000 rather than £228. The next question would be: how much do you want to pay per month? Overpaying will get the loan paid off sooner.

For a £228'000 mortgage, you would need to pay a little over £1400 for 25 years to pay it off. If you upped your monthly repayment to £2000, you could pay it off in around 13 and a half years. To pay it off in 5 years would cost you £4355.06 per month. However, these figures rely on the interest rate remaining the same for the whole mortgage term.

Give my repayment mortgage calculator a try to quickly work out the figures.

Hope this helps.

Arkad

jamesd

Investing is likely to be your fastest route to paying it off. Equity ISA initially, up to the 7000 a year for each of you. Since you're looking at a minimum investment term of around 10 years this is a suitable method.

If that is higher risk than you like, 3000 a year for each of you into the 5.75% cash ISA from Ruffler Bank plus overpayments to the mortgage is lower risk and still produces some benefit.

So long as you can save or invest and expect higher returns than your mortgage interest rate, saving and investing is going to get the money to pay off the mortgage built up faster than paying into the mortgage directly.

9 years from now for a repayment mortgage you'd have an outstanding amount owed of about 178000. If you were to invest 14000 a year at 1166 a month to use the maximum ISA limit and get a return of 10% you'd accumulate 203000 in 9 years. At 8% it would be 183500. So if you were able to do this it seems that 8-9 years to payoff is possible.

Then you would need to decide whether you should use the accumulated money to pay off the mortgage. If you have consistently achieved a 10% return and are only paying 5.5% for the mortgage there would be benefit in leaving the money invested to continue getting the higher return for longer. Possibly waiting until 15 years, when the fund could be 483000 at 10% and the mortgage outstanding 129000. That would leave you with a nice investment pot to continue growing. If instead of waiting until year 15 you paid off the mortgage and just started investing at ten years, you'd only have a bit over 90000 in the pot at year 15. A huge difference from leaving the money accumulating for a bit longer before paying off the mortgage.