To save it or pay it off

chillerman

Hi, I was wondering if anybody might be able to offer some advise. My wife and I have got a mortgage which consists of endowment and repayment . The mortgage ends in Nov 16.
Now, one of the endowments is coming to an end and we are expecting to recieve approx £18,000 -£18.500. This is approx £3,000 short of original target. This will leave us with approx £19,500 to pay. There is another endowment at the end of this for aprox £6000. The rest is on repayment. Now, we are wondering if it might be worth while putting the chq in a high interest savings acc earning us some money for the next few years untill the end of the mortgage. We were thinking of maybe an ISA for this?
We would also be paying the money, that was paying the endowment, as an overpayment each month to help bring the total down too.
Any help and ideas would be appreciated

theoretica

Would the interest, after tax, on savings be higher than the interest you are paying on the mortgage?

chillerman

theoretica wrote: »

Would the interest, after tax, on savings be higher than the interest you are paying on the mortgage?

This is what I'm not sure off, and thats why I was thinking of an ISA as I believe thats tax free interest.

holly_hobby

The net return would need to be at least equivilent to the mge interest rate being charged (which is subject to change, subject to your mge T&Cs and lender movements if on any kind of tracker, discount or BMR product). And don't forget, you will still be making full interest payments on the os mge which has not been redeemed by the vesting endowment policy.

The investment medium would also have to be consistent to your risk profile, you having an aspect of mge on repayment, indicates to me that you are risk adverse to cautious.

So any asset backed investment medium would not be advised, even if tax free, such as SS ISAs.

You are instead looking at low risk mediums/cash deposit accts and cash based ISAs - which can both meet your ATR, and the net interest rate return reqd to sucessfully make the format work.

As we have discussed, and subject to the T&Cs of your mge product, the return to higher rates of borrowing will return at some point. When it starts edging towards your net return, you will want to consider switching some (or all depending on the issues) of the endowment capital held in feeder/investment accounts and vehicles, to actually reduce your borrowings. (subject to ERPs etc).

It would be a good idea to spend an hour with an IFA to enable them to assess your financial situation and make suitable recommendaions.

You could in the meantime gather some info yourself re NSIs, notice accounts, cash ISAs - remember if you are a tax payer, you need to compare the NET (of tax) return to mge interest being levied.

Personally for the amount we are discussing (and subject to ERPs), I would just go ahead and reduce my mge. BUT if you don't wish to do this (and eveyone will have a diff opinion), and you are disciplined enough not to dip into the endowment proceeds (or at least not exceed a sum that you know you won't be able to replace before scheduled mge redemption), you have the basics here of how to make a thorough and appropriate comparison between the merits of partial redemption or retaining the funds in other invesment/feeder accounts.

Hope this helps

Holly

Joe_Bloggs

@Chillerman . What interest are you paying on your mortgage ? Can you repay some of the capital without being charged early repayment fees ?

The cash ISA limit is £5640 per person per year at present.
J_B.

DVardysShadow

littledoe wrote: »

Any type of debt or credit option is stringed with an interest increasing at high rates. If you are unable to act immediately, your finances will be engulfed for long-term, which may result in bankruptcy.

http://www.iwillteachyoutosave.com/category/ways-to-save/
2nd para of article by admin May 16

http://ezinearticles.com/?How-To-Save-Money-While-Avoiding-Debt&id=7073233
4th para

I wanted a bacon sandwich until I decided this should be called regurgitation spam

holly_hobby

littledoe wrote: »

Any type of debt or credit option is stringed with an interest increasing at high rates. If you are unable to act immediately, your finances will be engulfed for long-term, which may result in bankruptcy.

Gosh a little far fetched but hysterically funny !! ... you suggest the OP will face bankruptcy, if he can't immediately partially redeem his borrowings on an interest rate hike .... !!

It has already been suggested to the OP if they wish to retain the vesting policy proceeds (to gain a higher return than mge charge) to retain at least part of them on instant access and the remainder in short notice mediums (I would suggest no longer than 90 day) - so that any financial fallout and ongoing exposure from an interest rate hike, is farily easily managed and relatively short lived for the OP.

Hope this helps stop anyone else reading your post from going into a total panic meltdown ....

Of course it should also be considered that if the OP is a taxpayer, then they could benefit and may wish to consider moving the mge and policy proceeds onto an Offset arrangment (subject to the impact of any ERPs on the current product/s the mge is held under). Rates and fees aren't ground breaking, but capital is retained, returns not taxed but offset against mge debt, and they are pretty flexible re making lump sum reductions.

I reiterate my previous comment that advice (following a full financial review) from an IFA Mge Adviser, should be sought in this matter - as there are several variables that may be suitable (inc paying the sum off the mge as originally intended by the polciy), the choices made wholly dependant upon the OPs financial and personal status.

Hope this helps

Holly

chillerman

Joe_Bloggs wrote: »

@Chillerman . What interest are you paying on your mortgage ? Can you repay some of the capital without being charged early repayment fees ?

The cash ISA limit is £5640 per person per year at present.
J_B.

Hi, the interest we are paying is 1.6% variable on a long term rate.
We also don't have any early repayment fee's if any of the capital is paid of early.

dimbo61

Well if you are only paying 1.6% you should be able to get near 3% from a cash ISA so you can put 2X £5460 into cash ISA,s with you and your OH! but the rest maybe needed to pay off the mortgage.
If you do this and use the monthly endowment payment PLUS the difference between what you pay now and the new mortgage payment once you have paid £7000/£7500 off the mortgage.
You will be MF quicker Good Luck

DVardysShadow

holly_hobby wrote: »

Gosh a little far fetched but hysterically funny !! ... you suggest the OP will face bankruptcy, if he can't immediately partially redeem his borrowings on an interest rate hike .... !!

Holly, littledoe is not a real poster - it is regurgitation spam as you can see from the links I provided. I reported the post to abuse, but they don't seem to understand, so they have left the post to stand.

antenna

chillerman wrote: »

Hi, the interest we are paying is 1.6% variable on a long term rate.
We also don't have any early repayment fee's if any of the capital is paid of early.

This rate seems incredibly low on a long term mortgage.
The building society would snatch your arm off if you wished to repay all or any lump sum off your mortgage.
When did your mortgage start,as normally rates are fixed for 3/5 years and then revert to variable rate
1.6% and variable too...........incredible!