Overpayments to Repayment or Interest Only part of my mortgage?

Murff

I have a Bristol and West (BOI) Flexi Tracker Mortgage fromNov 2005

Original £70K
Left to pay: £58k
£16K on Repayment – matures 30.06.2025
£42K on Interest only – matures 30.06.2030
Current interest rate is the same on both 1.15% (my deal is baserate + 0.65% for life) and I currently pay £156 per month.

No restrictions on overpayments.
I want to use my savings money (£25k) in the most effectiveway to reduce my mortgage debt.
I am able to convert my I/O part to repayment withoutpenalty, but is this the most beneficial way or just pay off the capital thenconvert?

I have a £42k with-profits Endowment policy connected to themortgage which has always been on target. I guess I would continue to pay into thisas a savings account if I converted to Repayment? Can I make it tax free?

I can’t work out whether I should convert mortgage to allrepayment and pay off the 20K or just pay off my £16K completely and pay theremainder to the I/O mortgage?
I believe the bank interest rates will raise in the next fewyears, so will my tracker in turn.

Ideally I wish to learn how to reduce my mortgage mosteffectively in the current financial conditions and perhaps in the near futurewhen conditions will be different with higher interest rates.
My £25K savings is made up of three cash ISA’s currentlywith good short term interest rates about to finish in April and the rest incash.
My mortgage rate is portable, so I could take it with me if I ever moved house again.
Any help or advice would be appreciated, I have looked at the Overpayment calculator but I don’t know because I have the mixed mortgage?

opinions4u

Why overpay?

Put the money in easy access savings account paying more than 1.15% after tax.

Or fixed term accounts that track base rate.

http://www.moneysavingexpert.com/savings/savings-accounts-best-interest

Then you'll earn more interest than you're being charged.

holly_hobby

As above ...

Following on, once the mge interest rate matches or exceeds your net return, reduce the interest only element with any ad hoc lump sums (less balance os, less interest charged, lower overall cost of borrowing, which is the name of the game !).

Remember to retain an emergency fund, and consider that once a lump sum is paid off your mge (and unless you have a flexi mge), any subsequent requirement/need to withdraw the capital would essentially equate to a equity release via a further advance or remortgage (with all the criteria checks that accompany such an application) - so just bare this in mind when choosing the amount you wish to reduce your mge by (notwithstanding any ERPs of course if the amount is in excess of the annual permitted penalty free amount).

Just to go off on a tangent, have you considered an offset mortgage arrangement ? Which would permit the benefit of your savings held to be offset against your mge borrowings (on a typical arrangement resulting in lower interest charged, but no actual return on savings) BUT would still allow you full access to the capital if reqd.

To be balanced, I must say that interest rates aren't always as competitive as straight residential mges, BUT with the equivilent tax breaks (beneficial if you are a taxpeyer) that effectively accompany a typical offset arrangement, it may be worth while considering.

Anyhoo, food for thought I hope.

Hope this helps

Hols x