reducing my mortgage - options??

beedmcfc

currently owe approx 38k on my mortgage,its fixed at 4.89% until september 2010.

My payments are 242 a month for another 20 years and 2 months.

If i make an overpayment, i get charged £50 each time.

I've started paying in £250 a month into a savings account (have done since last november), would it be better for me to wait till sept 2010, and use the money ive saved to pay off some of my mortgage or every 4 months or so pay off a £1000 and pay the £50 admin fee??

silvercar

You should be able to find a savings account that pays a decent rate of interest. £50 is 5% loss on £1000 - far too high. Save up as much as you can then pay it off in one lump at the end of the fixed rate.

MarkyMarkD

It's quite likely that you could reduce the term of your repayment mortgage, for a one-off fee, and that would have the effect of increase your payments and hence reducing your future interest expense.

That might work out cheaper for you overall than the savings approach silvercar suggests, but it depends how much you actually want to overpay, whether you can commit to fixed overpayments (by reducing the term) and how much your lender charges to change the term (if anything).

beedmcfc

hi silver, the money i'm saving is in a lloyds tsb savings account as recommended on here, think it pays 8% gross - i know you say the £50 is a 5% loss but would i gain the £50 back on the interest i'd save on the mortgage? maybe its worth paying a chunk off every 12 months, £50 on 3k isn't as painful!!

MarkyMarkD

Because your mortgage rate is so low, you are not losing very much by NOT overpaying the mortgage.

Indeed, if you are saving at 8% gross, or 6.4% net, you are actually gaining by not paying money off the mortgage as 6.4% net is way more than 4.89%.

Even if you were saving in a more normal account, you would not be getting much less than 4.89% net.

So there's little reason to incur any overpayment charges and the answer to your question to silvercar is that you would not gain back the £50. It's not worth overpaying in the way you suggest.

silvercar

At 8% interest gross, that is 6.4% net for a basic tax payer or 4.8% for a higher rate. With a mortgage rate of only 4.89% your savings are limited to this amount.

As a basic rate tax payer it is definitely worth keeping the savings with Llodys TSB. Even as a higher rate payer, the loss of £50 is much greater than the loss of interest. At a difference of 0.09% you would need over 55,000 to make up for the loss of £50 capital.

Stick with the savings account.

MarkyMarkD

LOL, posted at the same time. Glad that we both agree - forget overpaying.

Incidentally, most people would kill now for a 5 year fixed rate at 4.89%. You are very lucky to have fixed at the right time!

beedmcfc

thanks for the insight guys - i'll stick to what i'm doing, in 3 yrs time when my fixed runs out, i'll pay some off and try to get another mortgage with a decent rate but reduce the term so i'm paying double what i am now, hopefully rates will fall by then!!

Thanks again :beer:

Woby_Tide

MarkyMarkD wrote: »

LOL, posted at the same time. Glad that we both agree - forget overpaying.

Incidentally, most people would kill now for a 5 year fixed rate at 4.89%. You are very lucky to have fixed at the right time!

and the rest would kill for £38k left on a mortgage after 5 years

beedmcfc

me and the wife have been very,very fortunate woby, we bought the house (only a 2 bed terrace) for 41k in june 2003, the mortgage companies would only lend us 59k max on both our incomes - how times change!! By august 2003, next door was up for sale at 63k and by november, a house across the street was up for 80k!!! So we got very very lucky

DawnW

are you and your OH using your 3K each tax year cash ISA allowances? If not this might be a good way of saving to repay your mortgage early.