Is paying off worth it?

SlightlyConfused

I recently came into some money which added to my previous savings means I now have £40K savings in total. I'm 15 years into a £38K interest only mortgage with 10 years to go. I currently pay £160/month on my lenders SVR of 5%. I'm not tied in.

I also pay £65/month into an endowment policy that is meant to pay off the mortgage 10 years from now. However it is projected to have a £4.5K shortfall at the medium growth rate projection of 6%. If I cash it in now I get £13.5K

I'm trying to figure out how much money I'll save if I pay off mortgage now with savings. I cant quite get my head around it so can someone tell me if my sums are right or wrong?

Option 1
If I keep going for 10 years I will pay:
£160 (mortgage) + £65 (endow) = £225/month x 120 months
= £27,000 + £4500 shortfall = I pay £31,500 total over the next 10 years. (Assuming interest rates remain the same or I get a 10 yr fixed mortgage at 5%).

Versus

Option 2
I pay the lot off immediately means I pay £38,000 today but I can also cash in endowment should I choose to do so which effectively means I pay £38,000 less £13,500 from endowment (£24,500) which means in real terms I save myself £6,500 by paying off today.

Is that right or am I missing something :question:

HelenDaveKids

if you type in morgage overpayment calculator into the search panel you will be able to see exactly how much you will save if you pay it off early.

Personally i'd pay it off (checking first you haven't got any early redemption fees) and keep the endowment running as I think they don't do very well at all if stopped earlier.

we paid our mogage off a few years ago by paying extra each month but have just bought a bigger house and have now a BIG morgage but as of this month started overpaying again.

HTH

Thrugelmir

If you are paying 5% interest. Then you better off paying down the debt now.

Once clear of the mortgage debt. Then review your savings strategy including ISA and pension.

SlightlyConfused

HelenDaveKids wrote: »

if you type in morgage overpayment calculator into the search panel you will be able to see exactly how much you will save if you pay it off early.

Personally i'd pay it off (checking first you haven't got any early redemption fees) and keep the endowment running as I think they don't do very well at all if stopped earlier.

we paid our mogage off a few years ago by paying extra each month but have just bought a bigger house and have now a BIG morgage but as of this month started overpaying again.

HTH

Thanks. I've tried using the mortgage overpayment calculators but they dont seem to answer my question. Maybe I'm not understanding them correctly but they seem to cater more for repayment mortgages rather than interest only.

I really want to see how the specific sums of my personal situation stack up including the endowment aspect.

Thrugelmir

What rate of interest are you earning on your cash savings?

SlightlyConfused

Thrugelmir wrote: »

What rate of interest are you earning on your cash savings?

Basically nothing at the moment. Once I've made the mortgage decision next on the agenda is savings/ISA's etc. I never really had enough savings for interest to be a main issue for me until fairly recently.

knuckledragger

So long as you have 65% minimum LTV on your mortgage, you could switch fee free to HSBC lifetime tracker mortgage at BOEBR+1.99% so effectively paying 2.49%.
All you have to do then is get more than that as a return on the savings you have (after income tax etc).

SlightlyConfused

A low rate mortgage is worth thinking about although there’s no guarantee rates will stay low for the next 10 years, so it is tempting to just pay it all off now.

Does anyone have any thoughts on my arithmetic in my 1st post? Assuming I did carry on paying 5% for next 10 years will I be saving myself approx £6,500 overall if I pay off now?