Guru's... what should I do with 50k!?

zzzLazyDaisy

I'm in the 'pay off your mortgage' camp too. Pay off what you can, then put the rest into the best savings vehicles you can find (ISA, Lloyds Vantage, possible a 12 month fix if you can find a good one - remembering to keep some accessible for next year's ISA), and pay off what you can when you can.

Just a thought, you say your monthly repayments include an overpayment. Does that come out of the annual 10% or is that an extra allowance?

noodle

barron83 wrote: »

- A&L advised that a 3% penalty kicks if I pay off a lump sum i.e. £50,000. I guess this equates to approx £1,500. Would it be in my interests though???

i have done a VERY crude calculation.

if you don't overpay then you'll pay about £6,100 of interest between now and the end of your fixed term.

if you overpay £50k the, assuming you're able to keep paying the same monthly amount without penalty, you would pay £3,200 interest over the same period. you would also pay a £1,500 fee.

that means that the £50k 'makes' you £1,400. that's the equivalent to sticking it in a savings account for the period and getting 2% net interest.

there isn't a lot in it. because your mortgage rate is fairly good, and the penalty is fairly high given that the fixed rate doesn't have long to run, the benefit isn't as good as at it might be for others.

if you definitely don't want the money available for anything else, and can't do better than 2% net interest by putting it in savings, then consider overpaying. otherwise, get the best interest return you can (it won't be much) and pay down the mortgage when you're no longer subject to the penalty fee which, in this case, swallows half of your interest saving.

noodle

mlz1413 wrote: »

I think if you have a repayment mortgage then asking to shorten the term (ie from 25 yrs to 20 yrs) would increase the monthly payment so effectively increasing monthly payments without penalty.

it's very unlikely that a bank would let a crafty plan like that work. mine works out the overpayment penalty based on the cash amount i pay relative to the cash amount i initially agreed to pay.

if this worked, then anyone could avoid all penalties by reducing their term by as much as they needed.

(of course.. that doesn't mean it's not worth a try.)

barron83

zzzLazyDaisy wrote: »

I'm in the 'pay off your mortgage' camp too. Pay off what you can, then put the rest into the best savings vehicles you can find (ISA, Lloyds Vantage, possible a 12 month fix if you can find a good one - remembering to keep some accessible for next year's ISA), and pay off what you can when you can.

Just a thought, you say your monthly repayments include an overpayment. Does that come out of the annual 10% or is that an extra allowance?

My monthly repayment is around £850 but i've been overpaying each month by £350 (therefore I've been paying £1,200 each month). A&L have advised that I cannot overpay by more than £500 each month (£1,350). To answer your question, the overpayments (£350) are an extra allowance to the 10% which can be paid off each Jan

A question on this. If i was on a repayment of £1,200 (instead of making overpayments of £350), would I be paying off more capital? Thanks again!

barron83

noodle wrote: »

i have done a VERY crude calculation.

if you don't overpay then you'll pay about £6,100 of interest between now and the end of your fixed term.

if you overpay £50k the, assuming you're able to keep paying the same monthly amount without penalty, you would pay £3,200 interest over the same period. you would also pay a £1,500 fee.

that means that the £50k 'makes' you £1,400. that's the equivalent to sticking it in a savings account for the period and getting 2% net interest.

there isn't a lot in it. because your mortgage rate is fairly good, and the penalty is fairly high given that the fixed rate doesn't have long to run, the benefit isn't as good as at it might be for others.

if you definitely don't want the money available for anything else, and can't do better than 2% net interest by putting it in savings, then consider overpaying. otherwise, get the best interest return you can (it won't be much) and pay down the mortgage when you're no longer subject to the penalty fee which, in this case, swallows half of your interest saving.

Noodle, thanks for the trouble you have gone to. I will pick this up with A&L and ask them to provide an indicative figure on the interest payable between now and April '12 (assuming I continue to pay £1,200 a month).

I will then check the interest if I pay £50,000. More to follow. Thanks a million!

noodle

barron83 wrote: »

A question on this. If i was on a repayment of £1,200 (instead of making overpayments of £350), would I be paying off more capital? Thanks again!

it shouldn't make any difference. assuming your interest is calculated daily and there's nothing odd in the way A&L do things. don't think of the interest and capital being different things in this regard. interest is calculated and added to your capital... and payments reduce that capital.. irrespective of how it got there. if a payment isn't covering the latest batch of interest, then it can only be reducing the remaining capital.

G'Meister

You could lend £10k of it to me, I'll start returning £12k after 4 weeks, and weekly repayments will finish after 8 weeks, at which time the initial sum will have been returned in full.
If we get along, I may be interested in borrowing again in future, although the interest rate on offer would be much lower.

getmore4less

barron83 wrote: »

Thanks Getmore. What do you mean by "shorten the term"? I''m tied in till April '12 and then it just reverts to the SVR.

But the full term is for longer so you can shortern that to increase the monthly payments.

So lets look
£50k earning 2.5%
£115k @ 3.99% till April 2012.

You can overpay by £500pm and 10% every Jan.

ERC on more than this is 3%
So if you overpay £1000 you pay £30 and save £40 but loose £25 interest so it is probably not worth overpaying for 15months

You could also look at some monthly savers they pay more than 2.5%.


Current payment is £850 I asume you can afford this from income.

Back calculation £115k @ 3.99 £850pm is around 15years full term.

So lets look at the time line with £850+£500pm = £1350

date.........mortgage.......savings
Start........£115000........£50000
Jan 11......£103500........£28500 (10%)
year end...£91206.........£23151 (-£500pm 2.5% on savings)
jan 12......£82085.........£14031 (10%)
April 12.....£78843........£12614

You can afford a normal payment of £850 so on (£115k-£50k) £65k thats a term of about 7.5 years lets say 8

The new monthly payment on £115k over 8y is £1400 you can over pay max 500pm.

So your need £1050 from your £50k per month

So the new time line is
date.........mortgage.......savings
Start........£115000........£50000
Jan 11......£103500........£28500 (10%)
year end...£84484.........£16474 (-£1050pm 2.5% on savings)
jan 12......£76035.........£8026 (10%)
April 12.....£71077........£4919

Now the new monthly payment on £71077-£4919 over 7 year @ 2.99 is £904.

So some adjustments will get you were you need to be.

If they will let you shortern the term and then increase it later than you can use up the 50k even quicker.

eg say a 5 year term noraml payment is £2117 say £2000 + £500
So the new time line is
date.........mortgage.......savings
Start........£115000........£50000
Jan 11......£103500........£28500 (10%)
year end...£77151.........£9191(-£1650pm 2.5% on savings)
jan 12......£69436.........£2248 (10%)

So at this point you have only one payment left in savings so time to change term back up from the 4 years left.
£70k(ish) and a normal £850 payment need around 8 years