Rule of thumb, save or pay off mortgage?

groomie

I have a mortgage (about £60K to pay 20K on interest only) paying about £450 pm inc the endownment payment.

I'm managing to save in various accounts about £300pm

I have about £20K in savings and no debts I pay off the C/C's in full every month.

Is there a riule of thumb about what is best, continue as I am or pay off as much of the mortgage as possible, remortgage over a shorter term and take a break from saving for a while?

thank you for your advice.

zzzLazyDaisy

I think it is always a good thing to have some savings, for the proverbial rainy day (many people say the equivalent of 6 months wages, to see you over in case you lose your job).

Having said all that, I paid my mortgage off by making extra lump sum payments when I could, and keeping the monthly payments the same, even when they should have gone down. If your mortgage is calculated daily, it is amazing how much difference this makes, and how quickly the balance owed is reduced.

The endowment is a more thorny issue. You need to be sure that it is worth paying into. A lot of endowment policies are not even growing at the rate of the annual contribution. You may find that it is better to surrender the policy, and use the capital released together with the premiums, to bring down the mortgage. But that depends on your own individual circumstances and you will need specialist advice in order to decide what is right for you.

PS... I had a car accident and became disabled and unable to work. I was so grateful that I had paid the mortgage off when I did.

Froggitt

IMHO, it depends if the savings rate youre getting after tax from interest exceeds the rate youre being charged on a mortgage.....eg if you were a non-taxpayer and were getting 5.00% on your savings from ING, and had a First Active tracker mortgage at 4.75%....but the differential is not that great.

groomie

Thanks for the replies, the endownment bit confused me as I thought it was always best to let them run?

I am a tax payer and my interest rate on the mortgage is higher than on any of my savings, so I guess I should be trying to pay off some of the mortgage and save less for the time being at least.

EdInvestor

Hi groomie,

POst some details on the endowment and I'll see if I can help.

Guaranteed sum assured and attaching bonuses,
Surrender value
Monthly premium
Maturity date
Target amount
Which company?

freestyle_3

I was about to post the same question !....

I am still a little unsure of what the advice was....

I am paying £900/month for my first flat that I moved into last year.

I was shocked to see a statement which said that I have paid in total 13K.

But only reduced the amount left to pay by 6K.. Therefore I paid 7K in interest !

Being my first morgage I was completely shocked. Having a tracker morgage @ Nationwide I did'nt really understand how it would pan out.


In reply to "save money for a rainy day" with the amount of 0% cards around. If that day came surely its easy just to get it on credit ?

Finally whats the view on this forum of those ONE accounts ? I can't stand giving the bank all that money in interest..

frogmort

a 0% CC for a rainy day if fine provided the type of rainy day leaves you with a good credit rating!

my view is to pay off as much of the mortgage as you can but see if you can arange a flexible advance or the ability to borrow back any overpayment. that way you save on interest at a rate that beats all but the best isas (if you are a tax payer) whilst giving you access to those funds if needed. i'm currently overpaying on my mortgage but at the same time i've arranged an additional 20k of borrowing from the mortgage without any real need at the moment as i found that its easier and cheaper to use this route than take out a loan.

as for one type accounts the rates available don't make them that attractive compared to the situation i've described above.