Should I pay off my mortgage discussion

Wsb5tails

We have a £97k flexible discount morg with A&L (deal ends March 09) After getting my monthly statement this morning I learned that A&L did not reduce its SVR at the last BOE reduction in Feb. This means we are paying 5.84%. We have been making overpayments for a while, so we have £42k credit. Leaving us paying interest on the £55k still owing.

My question is:
looking at falling savings rates and static mortgage rate, should I now take back some of my overpayments and put them into Regular Savings?

I was a basic rate tax payer April to July 2007 but am now not working so come April 2008 i will be able to take full advantage of tax free status. My husband is a higher rate tax payer and we put as much as possible in my name.

We both used our Cash ISA allowance in 2007 but I see we're only getting 5.8% now with NS&I i.e less than our morg rate. (total in all ISA's £43k)

What do the experts think we should do

Dithering_Dad

Sorry, I might have missed something, but I'm not sure why would you want to withdraw money from your mortgage to put into savings, especially as you say that your savings rates are falling and even your ISA rates are less than your mortgage rate.

Wouldn't you lose money by doing this?

Wsb5tails

Well that was why I asked the question. I thought that as a non tax payer using a few Regular Savings accounts at 7% I might end up better off?

Dithering_Dad

Ah, sorry - I did miss something!

Northern Rock has a savings account at 6.25 - you should find better than that, but you may have to open a current account (and pay a min amount into it each month) or have a 30day+ withdrawal period.

Have a look on fool.co.uk to check out their comparisons.

Wsb5tails

Thanks, I'll check that out. I guess your suggesting that using a high rate feeder account to the Regular Savings is the way to go.

dwigg

Jamesd,
There's some good number crunching in you post, thanks for that.

I find the trouble with investing is the amount of time it takes to do it well.
You've mentioned a bunch of places to put some cash into, and it would have taken me ages to find them, and recognise a good 'un vs a bad 'un.

Get it wrong and it could all go belly up, and £10k is a lot of money to some of us!

Still, I'm encouraged enough to take some time on this.

Cheers for the pointers (I won't call it 'advice').

jamesd

so02se, there are better interest rates than that available from cash ISAs so I suggest that you move the cash ISA money to the best rate available. You might consider one of the fixed rate deals since it appears that rates will drop this year.

Since you aren't a tax payer, yes, it would make sense to take money from the mortgage overpayments pot and move it into regular saver accounts in your name.

Wsb5tails

thanks jamesd, I needed that affirmation I wasn't missing something. The Lloyd TSA fixed ISA looks like just what I was looking for.

ghill35

Hi,

excellent article.

I have a question - my mortgage is split into 2 parts

- interest only part
- capital and interest (repayment)

Overpayments are allowed up to a fixed amount each month. With the max overpayment, you can chose to reduce monthly payments or reduce the mortgage term.

The article suggests that overpayments should be used to pay off capital, the question is, which of the 2 parts should I be making the overpayments to ?

Or does it not matter ?

What about the options of reducing monthly interest payment or reducing mortgage term - are there any advantages/disadvantages in selecting either of these ?

Thanks again for a very useful article.

Trying_to_be_good

If you reduce the interest only bit, you will save more money as you are already paying off some capital on the other bit. This won't reduce your term but will, obviously, reduce the capital sum owing at the end of the term that otherwise would still be payable in full.

E.g. I have £40,000 on interest only (Part 1) and the rest on capital + repayment (Part 2).

• If I overpaid on Part 2 it would reduce the term (assuming I keep my normal monthly payment the same). But I would still owe the £40,000 when the mortgage term ended.
• If I overpaid on Part 1 the term stays the same but at the end of it I would owe £40,000 less the overpayments (less a bit more if I kept my monthly payments the same).

You would then either be able to stop paying into the vehicle you're using to generate the capital to repay the interest only element (and divert the money to savings/mortgage overpayment); or keep paying into it and have a lump sum of whatever the surplus is over the amount that remained interes only at the end of the mortgage.

This might make sense - let me know which bits don't!