save or pay off mortgage ?

MadDog2012

i have recently had two endowments mature to the tune of £47k.
i have a fixed for term mortgage of 0.17% above base (0.67%)on a mixed interest only and repayment, to cover the shortfall from the endowment policies.
i am unsure whether it would be better to pay off the capital of the mortgage or save in a long term savings account.
any advice out there ?
Thx in advance

YorkshireBoy

You can get around 3% on your £47K in many instant access savings accounts (2.4% after basic rate tax if your ISAs are full).

So your question really is "am I happy 'making' only 0.67% when i could be making 2.4-3%, ie 4 times as much, instead?"

Does that help?

calypso_rhapsody

With a mortgage at that rate of interest it looks a no-brainer to save the maturity funds. Though i would go for security personally (so probably not risk it - certainly not all of it - on equities). But you can get 3.2% on an instant access savings account so even after tax that is better than you are paying on the mortgage.

I can think of two reasons why you might decide to pay off the mortgage - if you think there's a risk you might be tempted to spend or gamble the maturity funds? or if you feel that the security of knowing that you own your own home is worth foregoing the extra interest income (i think it works out about £1.1k pa net of BR tax)?

YorkshireBoy

calypso_rhapsody wrote: »

I can think of two reasons why you might decide to pay off the mortgage

Here's a 3rd reason...

If you're sat with £47K in the bank you'll be at the back of the queue for benefits should you lose your job.

I'm in this position myself, having a mortgage that's 100% offset, and it makes me nervous at times. However, on balance I think I'd rather have the security of a very large overdraft facility than face a struggle on benefits should I lose my job (again!).

Ifts

If you do choose to go down the route of wanting to pay your mortgage off -

Do check to see if there is an early repayment charge that you may have to pay.
Also some lenders only let you pay a certain percentage of the outstanding amount off each year (some put a cap of 10 to 15% on amount owed you are allowed to overpay each year).