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Pay lump sum off mortgage or not?

edited 30 November -1 at 1:00AM in Mortgages & Endowments
4 replies 1.8K views
NewcomerNewcomer Forumite
24 posts
edited 30 November -1 at 1:00AM in Mortgages & Endowments
Am wondering whether to pay a lump sum of £15k off my £45k mortgage.

The £15k is with Cahoot (5.5%), the repayment mortgage fixed rate of 4.25% for 2 years and in it's first year.

Now I realise that I'll be paying more mortgage interest than I'll receive in savings interest so it probably makes sense to pay off a chunk. Problem is, I love the thought of having that lovely cushion of money handy for 'a rainy day'. Ideally I'd like to invest in a property abroad, Spain etc, but haven't got quite enough to buy yet. (I'm a good penny-saver, lol - have more invested in ISA which I don't really want to touch - unless to purchase my holiday home abroad).

Maybe I can't see the wood for the trees in this situation so would love to hear if any of you wise folk have any suggestions.

Clean replies only, lolol.

PS Thanks in advance
PPS Anyone else in my situation and can only afford to buy half a property abroad - want to go halves?

Replies

  • david78david78 Forumite
    1.7K posts
    If you are not a higher rate tax payer, then 5.5% gross is worth 4.4% net (just multiply by 0.8 ). So you get a bit more interest leaving your money with Cahoot.  ;D

    Look at moving it when Cahoot's 5.5% promise runs out, or when Cyour fixed-rate ends and your mortgage rate increases. Just do the sums.
  • david78david78 Forumite
    1.7K posts
    If you are a higher rate tax payer, 5.5% gross is worth 3.3% (just multiply by 0.6 ), so you would then be better off with the money in your mortgage.


    See the wood yet!
  • ReaperReaper Forumite
    7.2K posts
    Part of the Furniture 1,000 Posts Photogenic
    ✭✭✭✭
    repayment mortgage fixed rate of 4.25% for 2 years and in it's first year.
    Check the terms of your mortgage. Many fixed rate mortgages heavily penalise you for making lump sum mortgage redemptions in the first few years.
  • Yes a good point, thanks for this Reaper. However, when I enquired I was told on the 'phone that there were NO penalities and was VERY surprised, so I followed it up with a letter and the letter came back and confirmed that I could pay any amount off down to a minimum of £1 owing! This on a fixed rate for 2 years was very surprising to me too! The mortgage was arranged through my IFA with Accord Mortgages, a subsidiary of the Yorkshire Building Society (if anyone else is interested).

    ;D
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