Should I pay off my mortgage discussion

cheeky_lil_monkey

Thanks,
Plan is to start a family within 2years. We have £6000 in savings from our ISA's and will have another years worth come April.
We still have over 3yrs of our fixed rate which is transferable to a new property, we'd both be working full-time on moving in order to get the highest amount towards a property that we can afford to repay when I am not working.

Should we make repayments now ... or wait and use these against the deposit for the new property?

jamesd

With cash ISA used, and stocks and shares seeming not appropriate for your timescale, next stop is any savings account paying more than 6.25% assuming that at least one of you is a basic rate tax payer. Lots of regular saver accounts pay more than that, so those are a better alternative to paying more on the mortgage. The Skipton BS accounts paying 7.55% gross before tax are particularly flexible since two people can put in anything from 80 to 2,000 a month using eight of them, changing the amount each month as needed. But there are several high rate fixed rate deals also and with rates likely to fall those may be a better idea for the monthly amount that you're sure will be available.

silentotter

We would like to be able to pay off our mortgage early as there is only £10,000 left on it. However we are stuck in a Natwest mortgage charging us 7.9% interest that will penalise for paying it off early. We would pay back over £12000 with the added interest they would want to charge what a cheek!

With so little left to pay on the mortgage would it be possible to shift to another mortgage lender charging less interest?

Runningman_3

Hi,silentotter
What penalty is it they will charge you for paying off your mortgage early? If it is an early redemption charge, often a % of the loan outstanding, then you would not be able to move to another lender without paying this fee. Also, due to the amout of balance left, the reduction in interest rate gained by moving would mean a minimal reduction in monthly payment for you.

The rate does seem high. Is it the SVR of the Natwest? If so you should be able to pay off xtra as you please, taking the balance down to a nominal amount such as £100. Hope this helps

CannyJock

tanglewood wrote: »

Very interesting and eye opening article. Thanks.

We are in the fortunate position to be able to take the advice in the article to potentially use our savings to repay our £50K mortgage. This would leave us with little savings, but we have no other debts. I am a higher rate tax payer.

However, what if we switched to one of these offset mortgages where the balance of my deposit account is used to offset the mortgage interest?. If I placed my £50K savings in the deposit account used to offset the mortgage, am I naive thinking that the mortgage interest payments would be close to zero, thus saving me the payments but having instant access to the funds in an emergency?. I guess there is a flaw in this theory, but is it worth considering?

That's exactly what it'll do. I look forward to my quarterly mortgage statement showing £ 0.00 in interest added each month :T I thought it was too good to believe too, but it works for me.

pootleflump

We currently owe about 97k with 21 years remaining on mortgage. We overpay by £250 per month (max allowed without penalty) but our fixed rate is up in May so shall be switching.

My question is: If I want to pay off £10k when I remortgage, who do I pay it to; my current lender or the new lender? And how would I go about it?

I hope this makes sense to someone...

jamesd

It goes to the original mortgage lender. Ask the new lender how to do this. The remortgaging will be handled by whichever solicitor is doing the conveyancing, probably theirs, and that solicitor is who you'd transfer the money to prior to completing the remortgage. The solicitor would then add it to the money from the new lender and pay off the old one with the combination.

Whattodo?_9

Hi

I've currently got a buy-to-let which if I sold, would leave me with about £75k after paying the outstanding mortgage, redemption penalty and estate agent's fees. Currently I'm about £100 per month out of pocket on the house after everything has been taken care of. In the 4 years I've had it it's made about 39%. The redemption penalty is in force until Nov 09 and I shouldn't have to pay any capital gains tax until Feb 09 (as it was my primary residence for a while).

However, I'm thinking about selling this house and ploughing all the money made alongside £30k in ISAs and £20k in cash into my existing £185k mortgage. This should leave me mortgage free in 5 years and I would still have a small rainy day fund.

I've checked all the calculators etc but am none the wiser and I'm in a quan dry as to what to do . The thought of being mortgage free in 5 years really appeals as would the disposable income after it was paid off but I'm not too sure if it's worth hanging in with the buy to let as it seems to be doing reasonably well. Does anyone have a sound opinion about what I should do? Thanks in advance!

jamesd

Money in ISAs delivers tax benefit until you're dead and usually pays more interest even in a cash ISA than the mortgage rate. So not usually worth using even cash ISA money to pay off a mortgage. Generally better as first target to fully use all of the 7,000 ISA allowance each year and treat it as say an early retirement fund.

It sounds as though you've been using a repayment mortgage with the BTL, is that right? How close are you to using the full tax break you get by deducting the mortgage interest repayments (but not the capital repayments) from the rental income?

What are the mortgage rates and would you have enough equity to clear the BTL mortgage with equity and a higher mortgage on your own home to avoid higher BTL mortgage rates? The interest on this lending to the BTL business from a larger loan on your home, up to the purchase price of the BTL, would be fully tax deductible from rental income and might take you from subsidy to profit.

Paying off loans at low mortgage rates isn't really an attractive investment choice. If you're looking to profit, investing seems like a better idea and it looks as though this year an next will be an excellent time to invest in equities or equity funds for someone with a five year time horizon, so you might consider taking the money and investing it gradually over the next two years.

Whattodo?_9

I hadn't considered doing that. The BTL was on repayment but is now on interest only. I'm not too sure what the maximum tax break is but when I do the tax return at the end of each year I'm always notionally in credit with HMRC. At present, the rental income is £5 more that the interest only payments. Once agent's commission and servicing/insurance it accounted for I'm about £100 down every month.

The mortgage rate on the BTL is 5.94% and on my home it's 4.95 although it comes to an end in April and I've been quoted 5.63% on a 2 year fixed rate. If I used all of my available cash and equity on my current home I would just have enough to clear the BTL but it would mean that I would need a 100% mortgage on my current home. If I did that wouldn't I lose out on any tax breaks that having a BTL offers me though?

My concern with the ISAs is that, whilst I've had it for several years it's only made about 3% which is why I considered using it to clear the mortgage. I'm also a bit worried about CGT. When I bought the BTL it was my sole property. Unfortunately because of work I couldn't live in it so I rented it out. Then 2 years ago I bought my current home. As I understand it, I have 3 years to declare this as my primary residence after which I would pay CGT on the BTL. Is that right?