Should I pay off my mortgage? Discussion area

INSPIRED

It would appear that there are a few queries along similar lines. I do not know the answer but, then, I am not an expert and find mortgages more difficult to undertand as the years go by!

Our mortgage is split between Repayment and Interest only.

At the end of April the mortgage had 8 yrs to run and the interest rate, at present, is 3.75%.

This month we have paid in the proceeds of an endowment policy and asked for the funds to be credited to the Interest only sub loan.

We do not want the monthly payments to change as they are affordable.

Building Society now says that we need to reduce the term of the mortgage to 7yrs 3mths if the monthly payments are to stay the same. We must pay £35 fee for this.

I was positive that we are doing the right thing but, now, am having doubts. Retired, no debts apart from mortgage, ISAs maxed out: surely we should be throwing everything we can at the mortgage? In 2016 we will need to remortgage and there is a possibility that no mortgage lender will take on the interest only portion of our mortgage - so we have been advised.

Hope someone can either put my mind at rest?

Many thanks.

HouseQuest

Hi Guys,
Newbie with a savings/mortgage related question if you have a minute.

We have an ISA at 3% until the end of the financial year and a tracker mortgage at 3.99% currently. There are no fees to overpay and we are doing so each month. However we have been thinking recently, since we have about £5000 in the ISA should we take it all out and pay off the mortgage before rates go up or keep it in the ISA?

We also have 2 regular savings accounts and mine is 6% but I know that rate applies only to the average amount in the account over the year. Should we scrap that too and chuck it all in the mortgage? We cant see it would damage us not having cash for a deposit, as we would use the equity we have built, if we dont get we want for the house we'd have to make up the difference anyway from our savings.

We cant decide as keeping the ISA means we get returns and will have that money tax free, but paying off the mortgage will hopefully lessen our payments before rates go up (and we assume mortgage rates will go up more than savings rates when they finally rise).

I have seen similar questions but wanted to see what people think.

Thanks

bambi1980_2

Hi, I currently owe £51432 on my mortgage. I pay £353 a month which comes out on 15th of the month. The bank calculate the interest at the end of the month so either 30th or 31st. I want to start making overpayments from January. I want to maximise this overpayments so when do you think the best date would be for the overpayments to come out?

Miliwife

My husband is in the military and we are currently based overseas. We have a house in UK (which is going to eventually be our home when either posted back to where it is or when husband retires in 7 yrs time) Current mortgage is £170,000 paying £955 a month. We are allowed to pay 10% off now (which we are going to do). We have just sold a house and have got £130,000 from the sale - £113,000 after making payment. We come out of the 2 yr fixed rate on 31st March (any additional overpayments would incur 3% penalty) so assume we should wait until then. Currently renting out and get £700 in hand after management fees. Husband pays 40% tax and I am not taxed. Question is are we better to reduce the mortgage and pay tax on any profit from income of the house or should we keep mortgage level as is? We will not take any risk with any investments as this money is to be used,at some stage, to reduce mortgage. Looking forward to receiving some advice! Thanks.

Bossworld

Hi,

I'm not overly worried about the choice of saving or repaying as my ISA has a lously interest rate anyway.

I've just renewed our mortgage deal and I'm trying to work out if it's worth overpaying.

I've extrapolated everything into an Excel spreadsheet so I'm reasonably confident with the maths, however there's something I'm missing or not understanding.

Assuming an overpayment of £50 per month, for a mortgage that's scheduled to run for 23 years (£600 per year overpayment). Interest rates aside, you would assume that

A) Over the course of the mortgage, you will pay less in interest.
The mortgage term will be shorter, therefore your overall payments will be less.

When I use Martin's calculator on the site, the difference between the remaining balance each year is slightly over £600 (which you'd expect is because you're also reducing the interest slightly).

However, when I use the SUM function in Excel, the overall interest paid compared between the two is about £6500, and the overall amount of payments made is a difference of about £5500. The mortgage is also paid off about 3 years quicker.

So what I don't get, if 20 years of overpayments comes to £12,000, and you're paying £6500 less in interest overall, and the remaining balance is reduced by roughly £600 a year, why does it only result in a £5,500 saving on your overall payments (the balancing part of my maths)?

Many thanks if someone can explain, I'm sure it's something obvious I'm overlooking. Is it as simple as £6500 of the £12,000 overpayments is just going towards paying off interest?

If so, other than the bank savings arguement, does this mean that overpayments up to a certain amount are a waste of cash? As on the face of it, you're paying £12,000 to save £5,500? Because looking at doubling the overpayment to £100 means you're paying £22800 to save £16500?

ninjasquirral

Beware when you pay off your mortgage that overpayments you make do NOT automatically come off your balance interest payment!

I have been making repayments over a 2 year period on an interest only mortgage and the monthly interest rate has NOT gone down. Only when I queried it with the bank was I told that the money goes into a holding account and even though I saw my balance go down on my statement the interest on that balance was calculated on the full balance! So in effect I saved nothing!

Is this the bank borrowing money from me for nothing?
I think the answer is YES because the money accumulating in that holding accout does not reduce my interest payments nor does it pay me any interest on the balance in the holding account. SNEAKY!!

mistryboyuk

Hello There ..

A newbie question if I may.

I have a mortgage that is 100% so in effect, am paying 0% interest (nominal rate if not 100% offset, is 4%). I have approx 11years left. My question is, should I continue to overpay and pay off quicker, OR given that I am paying 0% in interest, invest the additional in savings/investments etc. My mortgage allows for unlimited overpayments, with no fees.

On the face of it, it sounds a pretty obvious/dumb question, but just wondering what the general consensus would be. I am a base rate of tax payer as is my wife (so 2 ISA's to play with).

Any opinions/comments appreciated.

Regards

mcoppel

Hi, we have one mortgage account split into two parts, part is an interest only loan and part is a repayment loan. It is roughly 50:50 and both are on 1.99%. I have a lump sum of around 20% of the total loan that I want to use to make an early repayment (the penalties are relatively low). So here is my question, do I put it towards the interest only or the repayment part of the mortgage? Many thanks in advance! Mark

dougal76

Looking for a little advice. I want to reduce our mortgage as much as I can. Is it better for me to adjust the length of the term of the mortgage to a figure we can afford or keep the current term at a fixed rate of 2.69% and then over pay by as much as we can afford? Any advice would be greatly appreciated.

lingre

I have 4 years to go on my mortgage, pay £171 a month at 4.74% ( got approx £7200 left to pay) I could pay off with money in a bond getting about 3% or use it to over pay regularly....I have used the 'tools' , but still not really sure whats best. Any advice? :money: