Should I overpay on my mortgage or buy premium bonds?

dogsbestfriend

Hi,

I wonder if any of you who are good with figures would be kind enough to help me with an important decision. I have 15 years left on my C & G mortgage which stands at £102,000. Interest rate is 2.5% and it is on an interest only basis. I have looked in to changing to a repayment basis but the installments are fixed and prohibitive. The benefits of an elective overpayment are that if things are tight one month, I can withhold the £250.

We received poor advice from our lender 10 years ago, who, when we mentioned that my husband is an only child and that his parents are in poor health and own their property outright, advised us that as he was due to inherit their estate, it was probably not worth the struggle of taking on a repayment mortgage and that an interest only option would be cheaper.

The benefits of hindsight are that with their health declining rapidly, any proceeds of the sale of their property will be swallowed up by care home fees (our house is unsuitable for their disability needs otherwise I would care for them here).

I realised that the only way we were going to pay off this £102,000 debt was by hard work, so for several years I have been overpaying £250 per month and the debt is reducing ever so sloooooowly but I have started to wonder whether I would be better off buying £250 premium bonds per month instead.

I checked on the NSI website this morning and the big winners all seem to hold the maximum holding or thereabouts.

I have not the mathematical capacity to work out whether the odds of winning a big prize on the premium bonds outweigh the reduction in interest I am paying on the mortgage.

I know that none of you have a crystal ball which will foretell a large win, but some of you seem humblingly financially astute.

Thanks for taking the time to read this.

HappyMJ

Premium bonds really are just a poor way of gambling with the interest. You would be better off saving the maximum you can in ISA's (as long as they pay more than 2.5%) and if you really must gamble you could spend the interest on lottery tickets.

All the odds of winning are published on the website and as of today you have a 1 in 24,000 chance of winning a prize each month. The odds of winning the big one are about 1 in 44 billion. The return to player/investor (interest) averages out at 1.5%.

Gizmo247

The chances of dying between buying a lottery ticket and the draw is 1100 times more than winning the jackpot.

With that low interest rate it should be easy to find an ISA product that will beat it so go down the ISA route if you can afford to pay the difference in extra mortgage interest. Then you will still have access to the funds, if required.

Wh05apk

Gizmo247 wrote: »

The chances of dying between buying a lottery ticket and the draw is 1100 times more than winning the jackpot.
.

On that basis probably worth spending the £250pm on life cover instead!:rotfl::rotfl::rotfl:

Gizmo247

Hedging your life expectancy .. respect:cool2:

dunstonh

Premium bonds are dire. There seems no logical reason to use Premium Bonds. Either clear the debt or use more suitable investments.

stewil18

Just checking on a compound interest calculator and if you could get 4% on your savings, assuming £250 a month for 15 years, you would end up with approx £62k - so £40k short of what you need.

Putting the money in premium bonds, at the end of the term you will have £45000 definitely, but the potential to win a million.

£17k difference, you have to ask yourself are you likely to win at least £17k or happy to say, 'well at least i tried'

Thrugelmir

dogsbestfriend wrote: »

I have 15 years left on my C & G mortgage which stands at £102,000. Interest rate is 2.5% and it is on an interest only basis. I have looked in to changing to a repayment basis but the installments are fixed and prohibitive.

We received poor advice from our lender 10 years ago

Given 10 years has past and interest rates are now far lower. Along with the fact that your income has risen.

Highly possible that the poor decision not to repay the mortgage the lies with yourselves.

englandcrew

Go with the ISA option. Bonds are not guaranteed a return on your money, chanes of winning big are so slim!

Don't gamble with your future