Paying overpayments, but should I use savings towards mortgage ?

kph100

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Position -

£38k in a halifax cash ISA at 3.2% net
£14k in LLoyds Vantage at 2.37% net
£23k invested in shares
£8k cash uninvested in stocks shares isa
£20k in NS&I index linked

Owe £123,000 on mortgage at 6.39% 25 year fixed, am overpaying at moment that if continue shall pay off in 13 years.

Should I change allocation to different investments ?
Should I be using some of the money to pay off the mortgage rather than in cash ISA. ?
I do like to have a good cash blanket.
I have a public sector pension which costs 11% of salary, who knows what will happen to that !
I am 44 years of age, married with no dependants.

Comments please. nice ones

Hurdler

How much of a cash blanket do you have? How comfortable would you be to keep it at, say... 6 months (expenses + mortgage) as I think is recommended by Martin somewhere in these here parts?
I am making an assumption that your blankie is perhaps over that 6 month barrier.

I would keep the shares invested, but maybe remove cash surplus from the lowest payng account and perhaps throw that at your mortgage to maybe give you the best of both worlds for a bit?

Those are my initial thoughts...

adwat

Hi kph100

I'd pay it off the outstanding mortgage. You'd save £6.5k per year on interest and be left with a ~£20k balance. Using the saved interest only you'd be able to pay it off completely in 3 years - probably much sooner if you wanted to.

dimbo61

6.39% FIXED for 25 years!!! thats not a good rate and more than any of your savings so I would throw every spare penny allowed at overpayments and also enquire about reducing the term if possible.
Having a good cash Savings( blanket ) is a good idea but earning alot less than your mortgage rate is wasting money
6 months of income upto £16K is a good idea

kph100

Hi thanks for the replies,

6.39% fixed may not be very good at the moment, but historically over that period its good. Hence decision to fix back in 2007, with hindsight !!!

If pay off over 10% before 2016 cost £5k ERC

Sepa74

Given that you would save over 6.5Kpa on the interest if you threw everything at the mortgage, you are still quids in over the three year period it would take to pay it off.

6.5% is so high, and the rest of the economy is so p00h that even your stocks and shares investments may be better in the mortgage.

I think you need to do lots of excel spreadsheet work comparing scenarios and then working out what your best options are.

Don't forget the interest saved by paying it off the mortgage is risk free and tax free... which is more than can be said for any of your other investments apart from the cash ISA.

Good luck

dimbo61

Read the T&C,s of the mortgage carefully ! can you reduce the term so that it finishes in 2016? so mortgage over 9 years and not 25 !
I paid £50 to reduce our term from 22 years down to 10.
Now you have the money sitting in the bank to make up the difference between your OLD mortgage payment each month and the new more expensive payments.
You have to pay a £5000 ERC if you clear the mortgage before 2016 but you can reduce the amount owing as much as possible
Only an idea but give your lender ( mortgage centre ) a call and ask the question

dimbo61

I reduced the term while in the middle of a 5 year fix !

kph100

Hi
paying off over 9 years would cost £1507 pm instead of currently £1047. So within the 10% overpayment allowance even upto the 6 years from now when the ERC is no longer a factor.

When the OH is fully working I have been paying £300 extra pm so shall up to the £500 extra out of the savings even when OH not working.

Thanks.

miss_corerupted

personally I would pay off as much off my mortgage as poss, thats currently what I'm trying to do, but I haven't got savings like that.

dimbo61

I would keep the cash and S&S ISA,s( for pension savings) but use other savings to make the 10% allowed each year and reduce your debt at 6.39%
Every pound you overpay is paying you 6.39% tax free !!! try getting that from savings