pay off mortgage with interest

Hi, does this seem like a good idea or not?
Ive been made redundant so if I invested £21000 @ 6% = £1260pa interest
My :money: Mortgage is £101 pm, or £1212 pa so the interest pays the mortgage and when its paid off I still have £21000 left over.
Convention wisdom says pay off the mortgage have I missed some thing here?

Comments

  • You can only invest a certain amount in an ISA per year. Anything over and above would be subject to 20% tax? Someone more knowledgeable than me will keep you right on this!
    If you have a talent, use it in every which way possible. Don't hoard it. Don't dole it out like a miser. Spend it lavishly like a millionaire intent on going broke.

    -- Brendan Francis

  • btbright
    btbright Posts: 12 Forumite
    Thanks very much g queen, I forgot about tax ***
    what if £25500 x 6% = £1530 - 20% = £1224 Bingo ?
  • CLAPTON
    CLAPTON Posts: 41,865
    Combo Breaker First Post
    Forumite
    basically if the net interest rate on your savings is greater than the interest rate on your mortgage then keep the savings.

    if the mortgage interest rate is greater than the saving interest rate (net) and you can pay of some of the mortgage without penalty then it makes sense to repay the mortgage.
  • Dithering_Dad
    Dithering_Dad Posts: 4,554
    Mortgage-free Glee!
    Forumite
    Hi,

    It depends on your circumstances and whether you think you'll get a job quickly, whether you have other savings, etc, etc, but if I were you I'd bang the lot onto my mortgage so that it can't be means tested for benefits and because redundancy is tax free (upto 30k) I'd love for the government to get not one penny from it and if it's on the mortgage they can't!
    Mortgage Free in 3 Years (Apr 2007 / Currently / Δ Difference)
    [strike]● Interest Only Pt: £36,924.12 / £ - - - - 1.00 / Δ £36,923.12[/strike] - Paid off! Yay!! :)
    ● Home Extension: £48,468.07 / £44,435.42 / Δ £4032.65
    ● Repayment Part: £64,331.11 / £59,877.15 / Δ £4453.96
    Total Mortgage Debt: £149,723.30 / £104,313.57 / Δ £45,409.73
  • MarkyMarkD
    MarkyMarkD Posts: 9,912
    First Post First Anniversary Combo Breaker
    Forumite
    I'd like to hear others confirm this, but if you deliberately divest yourself of a capital sum by paying it off your mortgage, I would be surprised if that did NOT exclude you from capital-tested benefits.
  • barnaby-bear
    barnaby-bear Posts: 4,142 Forumite
    Hi,

    It depends on your circumstances and whether you think you'll get a job quickly, whether you have other savings, etc, etc, but if I were you I'd bang the lot onto my mortgage so that it can't be means tested for benefits and because redundancy is tax free (upto 30k) I'd love for the government to get not one penny from it and if it's on the mortgage they can't!

    Yep definitely, if it's on the mortgage it's not income so you can be eligible for benefits and even interest payments on the mortgage. Moreover most mortgage companies will let you reduce or stop payments for a while based on overpayments.

    Some offset vehicles can be used in a similar way.
  • barnaby-bear
    barnaby-bear Posts: 4,142 Forumite
    MarkyMarkD wrote: »
    I'd like to hear others confirm this, but if you deliberately divest yourself of a capital sum by paying it off your mortgage, I would be surprised if that did NOT exclude you from capital-tested benefits.

    Because it would reduce the cost of MSMI (Mortgage interest payments) etc, provided it is done in a way as to pay off an existing debt rather than deprive capital it can be done i.e. do it through an IFA. If you had £30k on CC and paid it off that's not deprivation of capital, if you bought a flash car though or gave it to your wife it would be deprivation of capital.
  • MarkyMarkD
    MarkyMarkD Posts: 9,912
    First Post First Anniversary Combo Breaker
    Forumite
    For a lot of people, they won't be eligible for MSMI for 9 months in any case, so I'm not particularly convinced by that argument for why it isn't deprivation of capital.

    Paying off credit card debts is rather different to paying amounts off your mortgage, but I'm happy to believe that you may be correct - I genuinely don't know!
This discussion has been closed.
Meet your Ambassadors

Categories

  • All Categories
  • 342.2K Banking & Borrowing
  • 249.8K Reduce Debt & Boost Income
  • 449.3K Spending & Discounts
  • 234.4K Work, Benefits & Business
  • 606.7K Mortgages, Homes & Bills
  • 172.7K Life & Family
  • 247.2K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards