Should I pay off my mortgage discussion

Welshlassie

Suzey wrote: »

In the article, Martin says:



Can I just clarify the last sentence - is he recommending this so that the payment hits the mortgage account before the calculation is paid, thus ensuring that the calculation is made on a lower balance?

Suze

Yeap this is exacty what he means, that way you pay less interest.

PIPSTER

Hello everyone,

I am new to the site and wondered if anyone could help.

I am currently on a base rate tracker mortgage at 3.75% with A&L, I have 22 years remaining(!) on my mortgage and wondered how best to my mortgage off early.

Should I pay £1000 extra each month directly to A&L (interest calculated monthly) or place the £1000 into a savings account? . I read that if interest on your mortgage is calculated on a monthly basis then the extra payment should coincide with this date?

I know the rates for savings are going down and down to do interest rates, but I would really appreciate some help here!

MrMicawber_2

If you can get a better interest rate in a savings account after tax than you are paying on your mortgage then financially you are better off going the savings route.

However it is possible to get caught by changing rates. E.g if your savings rate suddenly goes down and your mortgage rate doesn't.

You might still be able to get a fixed [ISA] account which gives you a better net rate than your tracker (is your tracker collared?)

What you could do to hedge your bets is put £500 per month into the mortgage and £500 into savings to pay off the mortgage later.

You should make your overpayment just before the end of the month but check with your lender about cheque clearance if you intend to use a cheque.

mollyj_2

in this article Martin says that an overpayment doesn't necessarily go straight to paying off the capital...can anyone explain this further?

I have an interest only mortgage and I had assumed that anything I paid over and above the monthly interest payment would mean that it would lower the capital. Is that correct???

thanks!

MrMicawber_2

Yes - a lot of accounts are on what is called a monthly rest or annual rest. Basically this means that your payments do not trigger a reduction in monthly payment or term until either the end of the month or the end of the year accordingly. So your money sits on your mortgage gaining you nothing until this point.

So, ask your lender when capital payments are effetive and pay them then - allowing if necessary for cheque clearance (different lenders may have different policies on cheques).

ALSO - there may be a minimum before an overpayment is classed as a capital repayment. This minimum is often £500 or £1,000 but check with your lender. Any amount less than this will just sit on the account until your overpayments accumulate and tip over the minimum amount. In such a case it is obviously better to put your overpayments in a decent savings account while they accumulate.

(Offsets are a bit different - I assume you are talking about a bog standard mortgage).

Just out of interest, if your mortgage is interest only, what is your long term plan for paying it off. If you aren't trying to get better rates in savings accounts (or you reckon you can do better in investments) have you considered converting it [or part of it] to a repayment mortgage.

mollyj_2

thanks that's really helpful

we have a part and part mortgage at the moment. A small amount on repayment, and the rest interest only. As money is tight at present, we're planning to do as much overpaying as possible on the interest only bit. I think this gives us some flexibility but means we can at least start to pay back.

we have got an endowment plan too, but I have little confidence this will pay back what its meant to (hence the overpayments).

I'm pretty sure we're on daily rest for our mortgage but will check, but didn't know about the minimum amount so will check it out.

MrMicawber_2

Spam reported.

Plasticman

bronco_zheng wrote: »

Christmas gifts-www.imaspammersoiwouldnttouchmywebsite.com

The Christmas is coming,.............

Wow - not just any old Christmas but THE Christmas!! Spam reported by me too..........

tali

Martin's calculator tells me at my Mortgage Rate(4.1%) It's worth paying off your mortgage with savings unless... you earn 5.1% as a basic rate taxpayer(ME) or 6.8% at the higher rate
I am on a repayment tracker - but which is best -lump sum or monthly overpay.?I'm not concerned about affordability or this and that - i just want to know if this is the right time(low rates) and right mortgage (tracker) to overpay as much as i am allowed (10k max)

jamesd

tali, no, it's probably not the right time to do it. Rates for mortgages are dropping so the current comparison picture is probably misleading. The course that is probably best today is a fixed rate savings account, regular saver account or guaranteed rate current account like the one from A&L.

Putting savings into two or even three year fixed rate deals paying at least 5% is probably going to be a good deal for you today, based on current predictions for interest rates. But I wouldn't put all of it into one deal, better a mixture of terms.

Once the savings deals end it'll be worth considering whether to put some savings into the mortgage.