Help with some mortgage sums needed please!

lisyloo

Between april 03 and april 04 I probably didn't make more than £33k (so not higher ?)?

For that tax year the band starts at £35K so not higher rate (unless theres something you haven't mentioned like a car).

Within tax year april 04 to April 05 i should deffo be in upper bracket then.

The level for the next tax year is about £36K, so yes.

How do you actually find out when you are bring taxed in the 40% range?

You should automatically get a tax return a the end of the tax year.
However if you want to check for yourself you can check the total salary on your P60 (which your employer should give you in May) and compare it will the figure for 40% tax.
So it's simply a case of comparing the 2 numbers.

Dont teachers do PAYE anyway so I should never have to do a rax return?

Yes they operate PAYE, but it doesn't include a number of items which we have already discussed.
The main 2 that apply to most people would be savings interest and pensions. There are very few people who would have nothing to pay because most people have savings or even interest on their current account.

And as for pensions - as a teacher I have been paying into one for about 10 years but with no AVCs.

That's great.
I don't know what sort of scheme it is, you will need to ask someone and check about the income tax.
In my scheme they automatically claim 22% tax relief for everyone and higher rate tax payers have to claim it back via tax relief.
Your scheme may be different so you will need to check.

But it could well be that you will be owed money back for higher tax relief, so you shouldn't look on this with dread.
It may well be that you are owed money.

Oggy_3

Ok then - just to summarise and confirm.

If I make £500 overpayments a month I am reducing the capital of the mortgage by £500 and I am saving any future interest of that amount too. Correct?

lisyloo

Yes that's correct.

If you keep your repayments the same as they were before then you will be overpaying (by a very small amount) each month so the interest savings will reduce your capital.

If your repyaments are reduced then the interest savings go directly into your pocket.

Your lender may dicatate whether your repayments are reduced or not or you may have the choice (obviously make sure the overpayments don't exceed the £500).

One thing I don't think we checked so far is that we are assuming you interest is calculated daily rather than annually.
If you don't know then this is something that's important to check.

Oggy_3

Yeah I am pretty sure that all NAtionwide mortgages are calculated daily.

DiggingOut

Oggy, what hasn't been addressed is whether or not you should pay off the mortgage and incur the penalty when you get the inheritance.

Again, lets assume 5.5% interest on your savings (may be higher or lower by the time you receive the inheritance). That means after tax you net 3.3%. So to pay off your mortgage costs you 3.3%, but saves you 4.09%.

However, if you pay off the mortgage during the penalty period, it costs you an additional 1% per year (for the remainder of the penalty period). So the net cost to paying off your mortgage is about 4.3%. (This is not precise because the 1% penalty has to be paid up front, but it is close enough). Assuming a savings rate of 5.5%, you are slightly better off waiting to pay your mortgage. At a savings rate of 5%, you would be slightly better off to pay off the mortgage when the money comes through.

Yes, Nationwide charges daily interest. I think if you check your mortgage documents you will find the prepayment penalty decreases every month by 1/12 of 1%. It does on my Nationwide mortgage, and I think it does on all of their current offers.

Oggy_3

Thanks I shall consider that.