To save it or pay it off

chillerman

antenna wrote: »

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!

Hi, our mortgage was taken out on this house approx 15 yrs ago. We payed a lump sum off a few years ago, care of another endowment payout.
We took out our first mortgage approx 30 yrs ago, sold that and paid it off and moved to our present address and decided on a 20 yr one this time. Of course we wern't paying that kind of rate then!!!!!!

chillerman

Hi all. Just a quick update and a bit more advise if poss.

We eventually got £18,236 on the endowment policy.
We have also recieved the latest statement re our mortgage. It is as follows:
£26,000 on intrest only.
£9,258 on a repayment made up of capital and interest.
Total £35,258.
Monthly repayment £245 at 1.6%
The term ends in Aug 2016
We also have another endowment for £6,000 due Aug 2016.

I believe that their are three options to do this.

1) We put £11,280 into 2 ISA's (locked in for 2 yrs on approx 3%)which would leave £6,956. We then pay this and reduce the £26,000 down to £19,044 as this is what it was originally for and continue paying full repayment per month.

2) We put the money into the two ISA'S and the remainder towards the £9,258 repayment part, reducing that to £2,302 which in turn would of course reduce our monthly repayments. We would then continue to pay our normall monthly repayment but the extra would be as an 'over payment' for which we would not be charged.
As and when that was payed off, we would then continue paying the money into a high rate acc to build the money back up.

3) Or would it be be better to pay off the full repayment figure of £9,258 straight away.
This would leave us with £8,978. We could put this into two ISA's (One £5,640 and £3,338) Then pay our monthly repayment into a high int savings acc.

I believe option 3, is the best as we would not be paying interest but earning some for ourselves.

I would also like to know what happens as and when we have payed of the repayment section of the mortgage. ie, Do we not have any dealings with the mortgage people untill we need to pay the final ammount?

Sorry if its a bit long but hopefully you can understand it!!
Thanks for any help or advise.

holly_hobby

I covered most of it earlier in the thread .... its difficult to advise without a full financial review, and any guidance should be taken as client non-specific and thoroughly discussed with your IFA.

Advantages on retaining a locked in feeder account, will largely depend on what tax banding you are in - BRT or HRT ? And your capacity/willingness to absorb future mge rate increases in the 2 yr lock in period, that may exceed your net return during the same timeframe (or if you are willing to absorb any early exit penalties).

When you make a partial redemption on your mge the balance obv keeps on ticking(payments maintained) along until scheduled redemption, when the lender will ordinarilly contact you a few mths before, with regards to the process for the final exit exercise.

Hope this helps

Holly