Advice needed on paying off a mortgage shortfall

Dawn_Hosker

We have approx £29000 from endowments that have just ended. It's short of the target amount of £43750. We have another five years before we have to pay off our mortgage. We're looking at placing the money in a savings account to make as much interest as possible over the next five years.

We'd be grateful for any advice on how best to do this. We have ISA allowances available.

Thanks!!

Shimrod

What's the rate on your mortgage, and what is the best rate you can get on your savings? If the mortgage rate is higher than the savings rate, you would gain most by paying the £29K off your mortgage now (assuming no early redemption penalties).

magpiecottage

Pay £29,000 off your mortgage. If you keep the payments the same then whereas until now you have only been paying interest, two thirds of your payment will go to reducing the loan and each month it will become more until it is cleared.

If you increase the payment by the amount you were paying on your endowment premium it will fall even quicker.

This assumes your lender will not penalise you for doing this but you are very unlikely to get an interest rate that exceeds what you are paying and even if you did it would almost certainly be subject to income tax on most of it.

Dawn_Hosker

Thanks both!

mortgage rate is 0.75 above base rate tracker
total mortgage is 43750 interest only and approx £23k repayment due to end in July 2016

getmore4less

Dawn_Hosker wrote: »

Thanks both!

mortgage rate is 0.75 above base rate tracker
total mortgage is 43750 interest only and approx £23k repayment due to end in July 2016

Save it and start ISAs(get in this years if not used allready with 2 of you that's most of it in ISAs

You are £15k(ish) short on repayments so start saving at least an extra £250pm to cover that.

originalmiscellany

Your mortgage rate is v. good. You won't get anything as competitive. It's well worth saving whatever you have left, and once interest rates are higher than your savings rates, then move it to clear your mortgage.
Lucky you, a good position to be in, in the big scheme of things.

magpiecottage

originalmiscellany wrote: »

Your mortgage rate is v. good. You won't get anything as competitive. It's well worth saving whatever you have left, and once interest rates are higher than your savings rates, then move it to clear your mortgage.

It MIGHT be worth doing that if you can fund an ISA. However, bear in mind that if you pay the money off the mortgage the amount of interest charged will almost certainly be adjusted the same day, or at least the same month.

By comparison, interest earned on an ISA will only have capital added to it once a year. That means if you pay at 0.75% and earn at the same rate you will lose - so do your sums and re do them every time the interest rate on either changes.

A stocks and shares ISA may do better but the value could fall as well as rise and there is an ever decreasing timescale in which to recover from a fall before the loan needs to be repaid come what may. It would be the equivalent of mortgaging your home for a short term investment on the stockmarket - which is generally seen as foolish.