Early payment method dilemma.

eddie_c_2

I have taken a mortgage of 100k over 22yrs, fixed over 10years at 5.37% (woolwich/barclays). I can pay up to a max of 5% of the outstanding loan each year, ie 5k this year.

What I am wondering is which method of repayment will be best?

I have an NS&I ISA of 3k (0.55% above base rate) and premium bonds of 5K (soon to be put elsewhere).

Should I just keep putting 6k into 2 x ISA's each year (partner also), save up cash this way, and pay a big wad off at the end of the 10year fixed term, in effect remortgaging then?

Or should I pay off the max amount I am allowed for any 1 year at the start (or end?) of the financial year, ie 5K now, and save up for next years payment via my ISA's or a high interest account?

Doing both of the above, ie maxing ISA's and overpayments will be too difficult I think.

Am I miles out in my thinking, is there a better way?

Thanks in advance.

Dithering_Dad

As long as you can get better returns with your ISA than you're paying with your mortgage rate of 5.37 then it would make more financial sense to store your money away in the ISA. You'd also have the advantage of having a pool of ready cash in case of emergencies.

However, if you're like me, you'll also love the sight of your mortgage slowly going down too. I'd probably end up doing both - 3k into a single cash ISA and 3k (plus any other cash I could find to try and make it up to the 5k max) into the mortgage. This provides the ISA emergency cash cushion but also lets you have the satisfaction of paying down your mortgage.

You might lose a bit of interest by not putting the whole amount into 2 ISAs, but you may also gain because paying the 3k off on your mortgage may give you the incentive to try and find the other 2k a year to make up the full overpayment allowance. This can be done by using the many MSE tips such as credit card stooging, reducing your utility bills, pigsback, mortgage pigs, etc, etc.

Sloganjerry

I recently remortgaged with Woolwich/Barclays and luckily came into some extra money. So I paid it off my mortgage as an overpayment equivalent to the maximum overpayment I'm allowed to make this year. I think it was 5%.

But my payments have remained the same? Does that mean that my term is decreased? I wouldn't mind this but what worries me is that my mortgage will be paid off at the end of the fixed rate period and if I pay it off before I have to pay a fee. :eek:Anyone have any experience with this mortgage and overpayments? I think I better not make anymore overpayments.

Cheers!

setmefree2

Hi

Do you have an aim? Do you want to be mortgage free so you can get another mortgage and move up the property ladder, for example? or do you just want to be in a good finanical position?

The Mortgage vs ISA dilema is not just a staright comparison of rates as an ISA will deliver tax gains forever. So an ISA pot of say £70k will produce a tax free income of say £3500 in old age, equivalent to £4666 worth of pension (as this is taxable.) So the earlier you start your ISA saving the bigger your tax free stream of income will be in old age. Attention should be paid to ISA's so you don't find yourself with excess money that you can't protect from future tax.

However, looking at an ISA in this way is effectively saying goodbye to the money, much as you do with a pension. So it does depend on what you are trying to do, I think. Indeed, many seem to be highly motivated to pay off "debt" and therefore ultimately maybe better off in the long run.

I am no expert - just thought I'd give you another angle to think about. Sure others will be along to give you more to think about.

Good Luck

Trying_to_be_good

Sloganjerry wrote: »

I recently remortgaged with Woolwich/Barclays and luckily came into some extra money. So I paid it off my mortgage as an overpayment equivalent to the maximum overpayment I'm allowed to make this year. I think it was 5%.

But my payments have remained the same? Does that mean that my term is decreased? I wouldn't mind this but what worries me is that my mortgage will be paid off at the end of the fixed rate period and if I pay it off before I have to pay a fee. :eek:Anyone have any experience with this mortgage and overpayments? I think I better not make anymore overpayments.

I have a Woolwich trasker mortgage and they only recalculate the regular payment at the annual mortgage statement time (or for me, being on a tracker, when the interest rate changes - won't apply to you with your fix) so you are in effect overpaying by a bit each month, as your minimum payment would be less if they'd realculated straight away, butyou're still paying the older higher amount.

But they will recalculate at your annual mortgage statement time, working out what you would need to pay to have the mortgage settled by the end of your original agreed term - so you needn't worry that it'll 'run out' before then. I guess the only possibility you could pay it off very early is if the term of the mortgage (as well as the period of the fix) was close to ten years when you took it out. If you're really worried, give them a call to check, but 5% per year on a reducing balance basis - with interest only you would only be able to pay off about 40% of the total by maxing overpayments in each of the ten years.