Should I pay off my mortgage discussion

billykeats

We were first time buyers that have a 5.67% 3 year fixed rate mortgage Interest Only with Birmingham Midshires. Borrowed £137025 against £150000 for the house with 28 years left. Was a 90% LTV with 1% fee added to the mortgage. Looking at Zoopla house is currently valued at just under £140K. ERC is currently 4% of the capital repaid reducing to 3% in the final year as of June this year. We both pay basic rate of tax.

Come June 2011 we will have saved £10000 in our Cash ISAs and will move onto the variable rate of 2.44% plus Base rate (2.94% if base rate remains the same)

We are also looking to start a family in the next year but we have money saved for that

Got a couple things we want to clear up. This is not our forever home, however we don't expect to move for at least 8-10 years and have been advised to stay on Interest Only. What we would like to know is:

1) are we able to make overpayments now without penalty even though our fixed rate hasn't finished? Can't see it in the paperwork unless it is really small!

2) The £10000 saved come next year, should we pay this amount off the mortgage next year when the fixed rate deal finishes? This would reduce to 85% LTV if house price increases back to when we bought ready to re-mortgage if base rate starts to climb

3) Finally provided the base rate stays low, when we go onto the variable rate should we keep our repayments at the 5.67% amount? Or go down to the base rate + 2.44% amount and put the rest in the ISA?

Our friend says that we should save all the money that is the £10000 plus the difference in payments firstly for an emergency and secondly to put towards that house we eventually want to buy as out forever home. But everything else says that we should make overpayments to reduce what we owe because savings rates are so low at the moment

Any advice would be much appreciated are we are very confused

jamesd

It's usually possible to make overpayments, check with your lender for details and limits.

It might be worth using the £10,000, it depends on what difference it makes to LTV and mortgage rates available to you then. A change of LTV band can make a big difference. You also need to allow for the value of having the cash available to you to cover things like unemployment, when an overpayment on your mortgage won't be withdrawable.

The ISA might not match the mortgage rate, depends on the offers available at the time. No way to know what they will be at this point, so wait and see.

Not having the cash will get you unable to pay your bills and repossessed if you lose your job. That's a critical short term need for enough money to pay the bills for a while. Only overpay with money that you don't need for emergency use. It's no good having an overpaid mortgage and a house being repossessed because you haven't been able to make the monthly payments. Better the higher mortgage and spending savings to keep up with the payments.

billykeats

Having read a few other threads and posts I think we are going to save most of the money. Keep the £10000 as an emergency fund and use it if we need to re-mortgage to help lower the LTV to get a good rate. Once we go onto the variable rate next year, especially if it stays low; over pay by £50 or £100 a month saving the rest in with £10000 we have already. It will chip at the amount we owe a little for the time being

Andy_ArT_Trigg

I decided to pay my mortgage off despite the fact I could earn a thousand or so pounds in interest by having the money oin savings instead. I don't like the unstable economic climate and preferred to get rid of the debt for peace of mind.

Dr_Ali_G

Hi,
I have an First Direct off set with current account facility mortgage@2.99% fixed with just over 1 tear to go. My wife does not pay tax, is it better to let it "off set" or get a 1 year Easter bond @3.31% with West Bromwich ?

torla

I have a flexible mortgage (borrowed £103,500 with 21 years and 9 months remaining) with A&L. My current interest rate is 1.49% The mortgage is interest only. My current situation is. Oustanding amount is £73354. Available credit in that account is nearly £30K (hence £73354 + £30,000 = £103,330 approx) which I can use as I please without penalties. I pay £400 per month (and can pay more) and costing me £90 per month interest on the mortgage. I have no other debts. My ISA is covered for this year with A&L I have other savings too with A&L but not paying much interest around .1% (£3000). I also have the Direct Premier Account currently paying 5% AER on the first £2500 but have in excess of that figure. I am a low tax payer.

My question is should I pay more into the mortgage or find a regular savers account or some other savings, bonds etc? I have no knowledge of boands etc. I am not much of a risk taker and feel safe to know I can get my hands on the money in case or emergency.

Regards

medieval47

The facts stack high in the decision to overpay your mortgage. Over the lifetime of the average mortgage, say 25 years, you will pay about twice as much money back as you borrowed, this is money that the banks have been taking from us for the last 20, 30 years and have p****d up the wall to coin a phrase and now its all gone. If you went to a bank and asked to borrow £150000 to buy a house and they came back and said no problem that will cost another £120000, I think most people would tell the banks where to go, but because we are paying a relatively low amount back monthly we don’t take into account the cost over 25 years. Even if you don’t over pay for the whole term you are releasing capital tied up in the property that allows you to borrow more if you decide to move to a bigger property, if not you have the bonus of shortening the period of the mortgage or reducing the payments.

As mentioned though there is still the need for some sort of savings, just in case of any emergencies. The argument for savings comes down to the amount of risk you wish to take, what access you need to the savings and what sort of income you are after. I am paying at the moment into a low interest account to build up some savings while I am paying 50% over my mortgage payments, the reason being I would like to pay off my mortgage sooner so I can plan to retire at an earlier age rather than 67/68 etc, but I realise my circumstances could change overnight so I am not naive to what could happen.

But my opinion on the matter is to get smart and learn about the different types of mortgage there are out there. I chose a 10 year fixed 3 years ago at 5.31% and maybe I would have been better off at the moment with a variable with the current interest rates….but the chances are that interest rates will go up over the next 7 years and I believe over the lifetime of a mortgage the cost balances out. Getting smart is the way forward, the information is readily available and you can do as good job a if not better than what the banks have done. What you have to realise is that the last 15 years have been the most prosperous this country has ever been and money was cheap, that is not going to happen again for a long time. Laziness is our biggest enemy and the information is out there to understand finance, it isn’t hard.

Roberta1

Hello All,

I was hoping for your views on my situation.

I have a tracker mortgage which operates at 0.85% above BOE Base rate, putting me on 1.35% currently which I know is very good. My mortgage balance is about 75k. I also have about 30k in the mortgage's offset facility. I have two questions:

1) As I don't pay tax (I don't earn enough!), am I right in saying that I would be better to move the 30k savings into a higher earning savings account as I am only getting 1.35% on it where it is?

2) Although we are doing well on this rate at the moment I have the heebie jeebies about interest rates going up and was considering a 5 year fix. What do people think about this? I know it would be a much higher rate in the short term than we are paying now.

Thanks.

Dennis.Coe

Great info/site thanks.

With Nationwide I am currently in a 3 year tracker agreement with an overpay/month set to £500 max before Capital Repayment Mortgage penalty is incurred - I am overpaying to this maximum.

This is fine whilst the rate is at the absolute minimum (2.64%)

I intend to 100% pay off when the 3 years is up.

But how can one assess the "what if the tracker rate is increased scenario" mid-term?

i.e. Is there an easy way to calculate the number of months the effect of a rate hike would overtake the penalty to pay off altogether immediately?

If this works out to be less than the number of months remaining in the fixed term I would go for it and pay off 100% plus penalty.

DC

Fat_Bee_Slim

Hi everyone,

I'm after a bit of help and got a bit lost in all the replies above...

My scenario is that, last Aug, my gf and I were first time buyers. £37,500 deposit was 15% of £250,000 house, so we took a £212,500 mortgage for 30 years at 5.49% (fixed rate for five years, four more to go).

Since then, I have had a critical illness payout of £212,100, due to health problems (thankfully, these are over now).

NatWest want £8,500 in an early repayment charge, so to pay off the mortgage we need to give them £219,500 (just over £7,000 more than we actually have at present).

We have no credit card debts. I pay tax at 20% and my gf at 40%, and our jobs seem to be safe.

As we've been given the critical illness payout to cover the mortgage, should we pay off everything immediately? I'm fairly sure we will, as it'll mean that our £1,204 mortgage payment each month can be saved / spent instead! But I was hoping for moneysavers' advice for our situation?

Many thanks in advance :wave: