Should I pay off my mortgage discussion

Dom1980

Hi, first posting on thi site so hope someone can help!!

I currently have a fixed mortgage with A&L split across two interest rates, £100k at 4.75% and £86,000 at 5.75%. The 4.75% rate ends in Feb and the 5.75% in April. I'm looking at payment SVR for a few months on the 4.75% to sync both the mortgages in April.

I'm luckily enough to be in the situation currently where I can save approc £2000 per month, though realise the job I'm on will end sometime next year (I'm currently in Norway) and realistically, should be looking to save £500-£1000 if I return back home. I currently have just reached my contingency savings target of £10,000 spread across an ISA and two savings accounts and lenf my girlfriend £4000 to pay off her credit cards, which she's paying me back £133/month.

With regards to my mortgage in April, is it better going for a fixed and overpaying, or a offset and stacking my savings.

Also (and here's where it get's complicated):

My parents are wanting to gave both my sister and I our inheritance now (mainly so my sister can get on the property ladder).

The original idea was to sell their house, pay off the remainder of the mortgage (approx £20,000) and give us both half of the remainder.

My idea was to purchase their property for a reduced fee (house is valued at £165,000 and I will buy for £125,000) and I receive £60,000 back as a gift as a lump sump and my sister receives £40,000 as a lump sum and £20,000 back as £250 monthly payments over 6 years (the £20,000 delayed pays off the remainder of the mortgage).

My parents then live in my current house rent free (roughly worth £250,000 in today's market) and in 10 years time, I then sell that property, buy a 2 bedroom bungalow worth approximately £150,000 in today's money and bank the £100,000 difference.

I'm now contracting as opposed to staff so am looking at it as a long-term investment opportunity rather than a private pension.

The two things I'm looking at are:

1. The best way to transfer the money/purchase the property
2. The most acute method for making it a sound investment opportunity
3. To give my parents some security, should I add them as a 1% shareholder to my current mortgage (the house they'll live in ) and is this possible?

Realise this post is a nightmare but any help will be much appreciated!!

Dom1980

Sorry forgot to mention, if I buy my parents property, will this need to be a buy-to-let, or is there a way I can purchase as an investment mortgage??

peterh8631

MSE_Wendy wrote: »

This thread is specifically to discuss the content of the

Should I pay off my mortgage article

To discuss or ask a question about the article: click reply

Hello, I was made redundant in June this year from a pretty well paid job. The prospects of me getting another job with similar money is looking bleak. I have been living off the redundancy that I received and I am now about to start eating into the savings that I have. I currently have a mortgage which I am paying off as normal as I didn't have mortgage protection. I currently have enough savings to pay off my mortgage in full , but this would leave me with only about £5k left. My wife works and this would be enough to cover the normal bills , but it would be very tight after the weekly shopping. This also doesn't take into account taxing/insuring cars, unexpected bills etc.... I am looking for work and am trying to establish a bathroom and kitchen installation company as a sole trader, so I will be earning something, but it's too early to know how much and how regular.
So my heaache is, with my payments being the lowest that they ever have been due to drop in interest rates, do I pay off my mortgage now, the advantage being that at least I know that we will have a roof over our heads if things don't work out with my business, or do I keep paying the mortgage and use my savings to help us live our day to day lives, in the hope that my income improves over the next 12 months? One other question, if I do pay off my mortgage, but end up on social security, would they help me financially or would they penalise me for using all of my savings to pay off the mortgage?

retailinsider

From my point of veiw it depends on your aversion to risk, ie how much risk are you happy to accept? Personally being reasonably risk averse (I like it safe) then I would pay off the mortgage all together and build the business, I am assuming you have no ERCs on the mortgage or you have allowed for those? I would also point out that the market is very tight for home improvements. I myself need a new ensuite, I have the cash, howver have opted to wait and prob DIY it to keep some money in reserve. I cant be alone on that behaviour and so I would expect it to be hard going, again adding weight to removing your mortgage from the equation.

retailinsider

tali wrote: »

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)[/qu

With the interest rates still looking like down is the way I would be up for a little gamble, take a look at Britannia BS Inflation Beater 2yr Bond, currently paying 5% net, you'd only need interest rates to come down by 0.1% to be on a winner. I also believe that over the next 2 yrs inflation will start to pick up (I'm betting on Oct 2009) and then your interest will be higher too, is guarenteed to be 1.75 above RPI. Worth a look.

sandraroffey

would have thought the best thing you can do is pay it off. as you say, its aroof over your heads AND a bloody huge debt got rid of. just think of all that interest you saving (at a much higher rate that you are getting on your savings!)

cant see how social security could penalise you for paying it off BUT starting in the new year (i think) they will help with the interest payments after 3 months.

have to say though, that a home improvements business right now may not be such a good move. everyone is holding on that sort of expenditure.

if the mortgage is paid, you can find a job that doesnt pay quite so much, because without a mortgage, that wont matter.

good luck.xxxx

Wookey

peterh8631 wrote: »

Hello, I was made redundant in June this year from a pretty well paid job. The prospects of me getting another job with similar money is looking bleak. I have been living off the redundancy that I received and I am now about to start eating into the savings that I have. I currently have a mortgage which I am paying off as normal as I didn't have mortgage protection. I currently have enough savings to pay off my mortgage in full , but this would leave me with only about £5k left. My wife works and this would be enough to cover the normal bills , but it would be very tight after the weekly shopping. This also doesn't take into account taxing/insuring cars, unexpected bills etc.... I am looking for work and am trying to establish a bathroom and kitchen installation company as a sole trader, so I will be earning something, but it's too early to know how much and how regular.
So my heaache is, with my payments being the lowest that they ever have been due to drop in interest rates, do I pay off my mortgage now, the advantage being that at least I know that we will have a roof over our heads if things don't work out with my business, or do I keep paying the mortgage and use my savings to help us live our day to day lives, in the hope that my income improves over the next 12 months? One other question, if I do pay off my mortgage, but end up on social security, would they help me financially or would they penalise me for using all of my savings to pay off the mortgage?

Hi, in 6-12 months time will you still have enough savings to pay of the mortgage? Are you likely to need a largish amount of cash to help you get started as a bathroom/kitchen installer as tools/transport/materials will cost quite a bit? Do you allready have enough work lined up to last you for a month or two? Can you offset your mortgage during this initial 6-12 months so that the capital is still available?

If you think you can manage without the safety net of your savings then clearing the mortgage will be a large amount of cash that you won't need to find month in month out. Perhaps paying of a large chunk of the mortgage and getting reduced years/monthly payments might be more useful to you as it would allow you more working capital for business startup, realistically you don't want to have to go to a bank asking for a business loan if you can avoid it. Play with the various calculators using different amounts/years for mortgages/savings and go with the solution that works best for you.

tali

sandraroffey wrote: »

would have thought the best thing you can do is pay it off. as you say, its aroof over your heads AND a bloody huge debt got rid of. just think of all that interest you saving (at a much higher rate that you are getting on your savings!)

cant see how social security could penalise you for paying it off BUT starting in the new year (i think) they will help with the interest payments after 3 months.

have to say though, that a home improvements business right now may not be such a good move. everyone is holding on that sort of expenditure.

if the mortgage is paid, you can find a job that doesnt pay quite so much, because without a mortgage, that wont matter.

good luck.xxxx

Agree .People keep telling to stick in savings instead- but i've got too many savings already-okay very nice they are earning interest - but i do think some of the savings would be far more effective wiping off, as you say, that huge debt.
My mortgage is around 97K - overpayment would save lots as compare to saving it (how many new-ish house buyers like me of have savings in excess of their mortgage?
Therefore -a high intrest savings account ain't going to put extra cash in your pocket like a mortgage overpayment will
I may be wrong but that's imho

jamesd

Dom1980, if it's to be your primary residence you can use a standard and cheaper residential mortgage. Also remember that you have the option of taking out or increasing a mortgage on your own place and using that mortgage to buy the parents' one. That maybe cheaper due to lower lown to value. Discuss the optimal way to do it with a mortgage broker.

You should also consider the capital gains tax implications. First thing to do as soon as you own two properties is nominate one, any as your PPR to HMRC. Doesn't matter which, just do it. You can change it later to minimise your CGT liability and save a lot of money. The one that is likely to see the largest capital gain is the one I'd go with initially.

There is also the matter of letting relief. Charge your parents some rent, any low amount will do. I'm not sure of the rules for letting relief on CGT and don't know what the rent requirements are, if any, so ask in the tax section here and then talk to an accountant so you get things set up optimally from the outset. Tens of thousands of potential capital gains tax can be saved, so getting it right is vital.

A new topic about your problem is appropriate since your issue is not about whether you should pay off your mortgage.

jdpdean

I've just been given a rebate from Ice save Isa. I'm thinking I should use this to pay off my 2 year fixed mortgage at 6.9%, rather than re investing it in another ISA at 4.6% with the best deal at the moment. Whats the best thing to do?