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Paying off mortgage or Saving?

moneysavingandy_2
moneysavingandy_2 Posts: 3 Newbie
edited 5 December 2011 at 8:25PM in Savings & investments
Ok here's a quick run down of my situation.

I live in my own home on my own, its worth approx £120,000. I currently have a 99k mortgage with direct line, This is costing my £449PCM with 23 years left (repayment) and its on the Direct line SVR of 2% (1.5% over base rate).

So im now in the situation where i've inheritted ~£95k and my inital thought was to just pay off my morgage, but now i've started to think.

The problem is where it started to get complicated is that I honestly think in the next two years I would like to move, and im thinking of maybe purchasing a house around the £220k mark.

I've been on the phone to direct line today and they tell me that I can overpay my mortgage without any fee's and if I move house I can transfer my balance with me to my new house. But if I want to ever borrow anymore money, its going to cost a minimum of 4% because they will port my mortgage to RBS as 'direct line' do not offer any more money without porting you to RBS. As you can imagine this is going to cost me a hell of a lot more money over the term.

I can overpay anytime but even if i want that overpayment back, or more equity released its gonna be at RBS's SVR.

Im happy with the amount I owe, but I wouldnt ever want to owe more than i do now (99k)

Would it be sensible to invest my inheritance ( im thinking 2 year bond) and just keep my mortgage as it is for now.

I can't see any mortgages with a SVR of anywhere near 2% as I cannot really be bothered to remortgage every 2 years with the related fee's.


Sorry for waffling on, would be great to here what the experts have to say!!!

Comments

  • opinions4u
    opinions4u Posts: 19,411 Forumite
    Stick your money in a higher rate easy access account. You should be able to get over 2% after tax. Tesco, ING, Halifax, Northern Rock, Natonwide etc have all offered half decent rates recently.

    But keep an eye on the rate. If it falls (or the mortgage rate rises) and the money can't be moved to a better home that's the time to repay the debt.

    £90k at 2% costs £1,800 a year.

    £90k saved at 3.00%, 2.40% net earns £2,160 a year.

    So you'd make £360 a year with nil risk this way.

    Just keep an eye out for rate movements.
  • Thats the logic i was looking at, direct line are trying to get everyone over to an RBS mortgage, which costs twice the price?

    Thank you for your quick reply.
  • innovate
    innovate Posts: 16,217 Forumite
    10,000 Posts Combo Breaker
    You get a bit better than 2% after tax if you go for a "semi-commitment" - i.e. instant access with limited number of withdrawals per year. Check out Martin's savings accounts article

    Having said this, I am not sure what I would do in your shoes. Difficult call to make - depends a lot on how the property markets is doing where you live.
  • VT82
    VT82 Posts: 1,084 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    Don't overpay your mortgage now!!!!

    Not only can you get better use out of the money by saving it, but you would lose your favourable rate forever. Even the best fee free term tracker rate recently has been 1.89% over base.

    Just keep an eye on the savings rates you are getting to make sure things stay this way, and keep an eye on the mortgage rate - you say it is an SVR but that it is 1.5% over base. Is the 1.5% tracking margin guaranteed, or is it a variable SVR that just happens to be 2%?
  • opinions4u wrote: »
    Stick your money in a higher rate easy access account. You should be able to get over 2% after tax. Tesco, ING, Halifax, Northern Rock, Natonwide etc have all offered half decent rates recently.

    But keep an eye on the rate. If it falls (or the mortgage rate rises) and the money can't be moved to a better home that's the time to repay the debt.

    £90k at 2% costs £1,800 a year.

    £90k saved at 3.00%, 2.40% net earns £2,160 a year.

    So you'd make £360 a year with nil risk this way.

    Just keep an eye out for rate movements.

    Agree with the math and asset diversification
  • Thankyou very much for replys. The property market is very stable around here, has been for a couple of years, I live in a town with a small population so there seems to still be a demand,

    Thats how i feel, im happy with my mortgage, and would like to carry that with me when i move, its also 99k which really is the max i'd ever want to owe on a mortgage.

    It is a fixed tracker rate. It does state this in my mortgage paperwork, i bought 2 years ago with like 12% deposit. 2 year fixed at i think 6.89% ! then has in the last month dropped to the 1.5% over BR garanteed, hence why they keep trying to get me to move to RBS rates!

    I haven't got the money in the account, but should be in the next two weeks.

    So i have £95k and around £150pcm that i would like to invest. Am happy to lock away for 2 years if you think its worth me doing so but do not want to risk losing any money. Im also aware of the £85k protection limit. But i won't need to touch the money really, I have small other savings to cover unexpected costs.

    With the figures above involved any personal suggestions, Defiantly dont want to rush into moving in the next 24 months though.
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