Which mortgage to pay off first ?

jamesd

Kelvin_Hall wrote: »

Even then, from what I have read (or miss-read?) I understood that as it is a regular saver it equates to 4% over the year (?).

That's misleading. You get 8% on all money in the regular saver account for as long as it's there. for money not in the regular saver account you get whatever interest rate it's getting in the other place. You'd only be getting 4% if you were foolish enough to keep the money not yet int eh regular saver in some account that pays you no interest. And you're not going to do that. It's more likely to be some of the new money that you are earning each month going into it, so that money didn't even exist to get any interest rate until it arrived in your pay.

Kelvin_Hall wrote: »

I really don't understand how being (just) in the higher tax band affects this !

You are required to tell HMRC about your savings interest received in each tax year. 20% wil be deducted from the regular saver interest as usual. HMRC will take the other 20% by adjusting your tax code, usually.

What you'd normally want to do is use pension contributions so that none of your income ends up being liable for higher rate tax.

Kelvin_Hall wrote: »

Also I worry that the a mid year rise in interest rates (must happen sometime) will wipe out any benefit I there was from this account.

This isn't really very likely since for a higher rate tax payer the net interest rate is 4.8%. An increase in interest rates is likely to be over a fairly long period and not to take it above the interest rate before the regular saver term ends. Most likely something like 0.25%-0.5% a quarter.

Kelvin_Hall wrote: »

I am fast coming up on 50 and so it is definitely something to think about. Is my interpretation of what you said correct if I say that - I could do take some pension money as a lump some at 55, pay off part or all of the mortgages and then use the money saved, that I was paying into the mortgages, to pay more pensions contributions to get my pension back to where it was ?

Yes! But you can also make the extra payments you were planning to make into the pension instead, then take the higher lump sum as part of the amount being paid off the mortgage. The net cost to you is somewhat higher because some of the money remains in the pension but that's money you probably need in the pension anyway.

Using pension lump sums like this is the most efficient way I know of to repay a mortgage. It's really hard to beat getting higher rate tax relief on your mortgage capital payments.

allisonk

In my opinion, you should make overpayment to the mortgage having less repayment i.e 29000

kidmugsy

Kelvin_Hall wrote: »

Hi Kidmugsy,
Thanks for the advice, but if the ISA your talking about is a cash one then I'd rather not use it as what I'm looking for is a long term solution which I don't need to review every year but can just work away in the background.

The Cambridge one was a three year Cash ISA. The tracker cash ISAs I've seen over the past few years have had two or three year terms.

Kelvin_Hall

Thanks Everyone, for such a lot of great feedback. I've only recently asked questions on this forum and I'm bowled over by how many people are willing to give up their time and knowledge to help people like me who don't even know the right question to ask half the time.

I feel I've learned so much and have changed my mind completely about what I am going to do. I think I will pay the overpayments into my pension and take the lump sum at 55 to pay off as much as I can of the IO mortgage.

I don't want to take up more of your time and don't want to start a discussion about pensions now but I have one question if I may - do all normal pensions allow you to take a lump sum out at 55 even if you are contuning working ?

Thanks again.

kidmugsy

The commonest sort do e.g. personal pensions and employer's pensions of the "defined contribution" sort. (Caution: I'm not an expert so I may yet be corrected on this second type.)

Employer's pensions of the "defined benefit" kind don't (but are otherwise generally very desirable schemes to belong to.)

kidmugsy

I should add that there are some formidable experts who answer at the pensions, annuities etc forum. Why not start a new thread there with your question?

jamesd

Yes, standard pensions that are not defined benefit (normally final or career average types) are allowed to provide a lump sum at any time from age 55. If you tell us more about yours we'll be able to tell you more about it. You could also just start a personal pension on your own, the SIPP form or just a normal personal pension.

There are a few personal pensions where the pension company just chooses not to offer the option at 55 (lump sum then income drawdown, with or without taking any income). It's usually easy to move the money from one of these to one that allows it. There's a chance that a work defined contribution one for the job you're in now might not let you do it and stay a member so it's worth asking so you know if you might be better off with one independent of work.

A few questions to ask but it's not particularly hard to get it sorted out, just a little new stuff to learn.

Kelvin_Hall

Thanks again. I'll take your suggestion kidmugsy and ask the question on the pensions forum.

Thanks to all that have taken the time to help - you really have been a great help !:D