Should I pay off my mortgage discussion

louisemiles

This was a great article and confirms what I've been thinking of doing all along. However, our situation is a little complicated...here goes...

We recently moved house and took out an additional mortgage for the to move to a bigger place. Both mortgages are with the same company (Nationwide). On the initial mortgage we borrowed £109,000 on a fixed rate (5.95%) which reverts to a tracker next month which tracks 2% above the base rate (so 2.5% at the moment). We're happy with this and are going to stick with it. The additional mortgage was taken out in February this year and we borrowed around £54,000 at 6.45%.

We have the option of overpaying by £500 each month on each mortgage and would like to overpay by the amount we are saving by the interest rate reverting to a tracker (around £250 per month I think) but my question is which mortgage should we overpay on to save the most money? If we overpay on the initial mortgage, am I right in thinking we will pay the balance down quicker because the interest rate is lower? From what I've read it would make more sense to overpay on the second mortgage as it's got a higher interest rate but it will not be paid off quite as quickly. Is this right or am I confused??!!

Any advice greatfully received!
Louise

alisoninbristol

AVENGINEER wrote: »

At last, by overpaying I've almost paid off my mortgage, with just a month left to go. However, it occurred to me that it might be worth hanging on to it by dropping to the minimum payment, just a few pounds per month. This is because I may (or may not) wish to have some building work etc done in, say the next 2 - 5 years, and instinct tells me that my current lender would be the best place to derive funds for this. After all, they know my track record, value of my property etc. However, my IFA says it's better to completely pay off the mortgage and he will arrange any loan I may need when the time comes. I like and trust my IFA, but can his advice possibly be correct?

However much you like and trust your IFA, remember he will get a commision for selling you a loan.

If you are fairly sure that you will need the loan, and the remaining mortgage repayments will be very small, I would keep the mortgage going.

When the time comes, you can still ask your IFA for a quote.

Lois_E

louisemiles wrote: »

This was a great article and confirms what I've been thinking of doing all along. However, our situation is a little complicated...here goes...

We recently moved house and took out an additional mortgage for the to move to a bigger place. Both mortgages are with the same company (Nationwide). On the initial mortgage we borrowed £109,000 on a fixed rate (5.95%) which reverts to a tracker next month which tracks 2% above the base rate (so 2.5% at the moment). We're happy with this and are going to stick with it. The additional mortgage was taken out in February this year and we borrowed around £54,000 at 6.45%.

We have the option of overpaying by £500 each month on each mortgage and would like to overpay by the amount we are saving by the interest rate reverting to a tracker (around £250 per month I think) but my question is which mortgage should we overpay on to save the most money? If we overpay on the initial mortgage, am I right in thinking we will pay the balance down quicker because the interest rate is lower? From what I've read it would make more sense to overpay on the second mortgage as it's got a higher interest rate but it will not be paid off quite as quickly. Is this right or am I confused??!!

Any advice greatfully received!
Louise

The standard payments that you are already making take care of the interest on both mortgages. Any OP you make comes straight off the capital, so OP the one with the higher rate to decrease the amount of interest due each month.

gelato_cat

Personally, I would overpay the second (£54k) mortgage as a) there is less capital to pay and b) the interest rate is higher.

Suze

louisemiles wrote: »

This was a great article and confirms what I've been thinking of doing all along. However, our situation is a little complicated...here goes...

We recently moved house and took out an additional mortgage for the to move to a bigger place. Both mortgages are with the same company (Nationwide). On the initial mortgage we borrowed £109,000 on a fixed rate (5.95%) which reverts to a tracker next month which tracks 2% above the base rate (so 2.5% at the moment). We're happy with this and are going to stick with it. The additional mortgage was taken out in February this year and we borrowed around £54,000 at 6.45%.

We have the option of overpaying by £500 each month on each mortgage and would like to overpay by the amount we are saving by the interest rate reverting to a tracker (around £250 per month I think) but my question is which mortgage should we overpay on to save the most money? If we overpay on the initial mortgage, am I right in thinking we will pay the balance down quicker because the interest rate is lower? From what I've read it would make more sense to overpay on the second mortgage as it's got a higher interest rate but it will not be paid off quite as quickly. Is this right or am I confused??!!

Any advice greatfully received!
Louise

foxybabe

Hi, I have just got a settlement figure for my mortgage which will be £28,327,46p. At present we are paying 2 1/2% interest (variable). I put 30k in a long term savings account at 4% two years ago which will be available in September this year. my question is if you were in my position, would you pay off the mortgage?

I was deliberating this two years ago but because the interest rate was so low I didn't bother. I was reluctant to tie up the lump sum for two years also as it seemed impossible then that interest rates would stay low for this long. So I bit the bullet and tied the money up thinking things would be different two years down the line when in actual fact they are pretty much the same which leaves me with the same dilemma.

Many thanks in advance for any advice.

AVENGINEER

alisoninbristol wrote: »

However much you like and trust your IFA, remember he will get a commision for selling you a loan.

If you are fairly sure that you will need the loan, and the remaining mortgage repayments will be very small, I would keep the mortgage going.

When the time comes, you can still ask your IFA for a quote.

Yes, I think your advice is spot on, I really needed to hear an unbiased opinion and you've written what I was thinking. I suppose that underlying my main question is a nagging concern that I should take my IFA's advice with a bigger pinch of salt than I've been doing over the years.
So how can you be SURE you're getting good advice? I'm happy to pay by commission, providing the recommendation isn't influenced by how much commission the firm in question pays to the IFA. Do people ever say to their IFA that they want to pay them up front for advice rather than through commission? Is that in itself not like saying that they don't trust them to make a totally impartial judgement on their behalf?
Thank you again, any further thoughts would be very welcome!

hamsterproductions

I am just in the process of re-mortgaging house. It is rented out receiving £540pcm after management/tax fees. Loan is £67,650

We rent the house we live in and can pay the mortgage on the above mentioned property in addition from our wage. All rent collected is thus free to save toward repaying the mortgage.

the loan we have is an interest only mortgage BTL @ 4.3% fixed for 2 years
3% early repayment penalty for 2 years.

I work out that even incurring this, I would be still getting a good deal if I overpaid monthly by £540 as I would reduce payments and overall loan - Is this correct???... or would I be better putting the rent into savings for two years and paying it off the mortgage in a lump sum when I am out of the penalties.

Advice welcome!....Please! - THANKYOU!

bluemonday1

New subthread. I am considering paying off my mortgage in full. If I did I'd have more than 50% deposit left for any any next move and might be able to raise the rest within 3 years so reckon I would not look risky to potential sources of mortage finance. All that said, my mum reckoned it's better to leave a small amount unpaid as it reduces the risk of getting turned down for a new mortage. Any comments much appreciated - thanks in advance.

Thrugelmir

hamsterproductions wrote: »

I would be still getting a good deal if I overpaid monthly by £540 as I would reduce payments and overall loan - Is this correct???...

The net income from letting the property is subject to tax. Have you factored this into your calculations?

Thrugelmir

bluemonday1 wrote: »

my mum reckoned it's better to leave a small amount unpaid as it reduces the risk of getting turned down for a new mortage. Any comments much appreciated - thanks in advance.

Makes no difference. As you'll be assessed for a new mortgage under the underwriting criteria at the time. So might as well clear the balance now.