Advice on paying down mortgage

[Deleted User]

I have a mortgage in 2 parts..£55k at base plus 2% for term and £25k at 4.64% fixed until Sept 2016. My minimum payment is £761 per month.

From Sept this year I will be able to overpay by between £500 and £800 per month. I am allowed to overpay by 10% on the smaller sub account with a 3% fee for amounts over the limit. I'm not sure what the overpayment limit is on the larger account is but can ask tomorrow

Phew hope that makes sense.

What would be the most sensible way of using my spare cash in my circumstance? Is it worth taking the 3% fee to get rid of the most expensive sub account? My aim is to reduce the term as it has 10 years 5 months to run which will be 3 years after my preferred retirement age.

Many thanks

getmore4less

If the Overpayment money will be permanent you could look at reducing the term of the £25k on the higher rate.

will work on some numbers.

If the first part is on a follow on tracker at base+2% probably unlimited overpayments.

what's the followon rate of the fixed part?


what rates are your other debts?

HappyMJ

Missu wrote: »

I have a mortgage in 2 parts..£55k at base plus 2% for term and £25k at 4.64% fixed until Sept 2016. My minimum payment is £761 per month.

From Sept this year I will be able to overpay by between £500 and £800 per month. I am allowed to overpay by 10% on the smaller sub account with a 3% fee for amounts over the limit. I'm not sure what the overpayment limit is on the larger account is but can ask tomorrow

Phew hope that makes sense.

What would be the most sensible way of using my spare cash in my circumstance? Is it worth taking the 3% fee to get rid of the most expensive sub account? My aim is to reduce the term as it has 10 years 5 months to run which will be 3 years after my preferred retirement age.

Many thanks

It's not worth paying a 3% fee to make overpayments. You would be better off saving the money either in a pension or ISA or investing in something else. I would never pay off the mortgage that charges only base+2%. It's a very good deal. You can save elsewhere and earn more in interest than what you are paying in interest.

[Deleted User]

getmore4less wrote: »

If the Overpayment money will be permanent you could look at reducing the term of the £25k on the higher rate.

will work on some numbers.

If the first part is on a follow on tracker at base+2% probably unlimited overpayments.

what's the followon rate of the fixed part?


what rates are your other debts?

Hi thank you for replying :-)

The fixed part reverts to standard variable rate. You're right about unlimited overpayments on the other part, I've just re-read the paperwork.

My other debts of £2800 are all at 0% and will be repaid in full by August which then leaves me spare cash to overpay the mortgage.

I want to clear as much mortgage before the fixed rate part ends in August 2016 as this is approaching my 60th birthday.

getmore4less

working on a 10year term

£55k 2.50% £519
£55k 4.64% £261

£780pm close enough.

£500-£800pm overpayments £6k-£9.6k

Reduce the term of the 25k from 10 years to 3 years, payment becomes £746

that's £485pm more that the current payment and still less than your min estimated free money.

with the 10% overpayment you could have this paid of sooner possibly by Sept 2016 and still have some flexibility with the rest of the excess.

then in 3 years you review the other loan which will be under £40k by then


Don't forget to build up some emergency funds if coming to the end of paying off debts.

getmore4less

How long can you keep the other debts at 0%?

Might be worth starting on the 4.64% mortgage now

[Deleted User]

getmore4less wrote: »

How long can you keep the other debts at 0%?

Might be worth starting on the 4.64% mortgage now

Thank you for the figures, it will help me think through my options.

My 0% debt will be gone in the next 3-4 months although the deal lasts until this time next year. I really want to say I'm debt free so to pay this off is very important to me. I'm on a relatively high salary now so even with overpaying by the amount discussed, I'm still able to save as well. I know I'm lucky but I've worked hard over the past 5 years to gain promotion albeit a bit late in my career!

[Deleted User]

HappyMJ wrote: »

It's not worth paying a 3% fee to make overpayments. You would be better off saving the money either in a pension or ISA or investing in something else. I would never pay off the mortgage that charges only base+2%. It's a very good deal. You can save elsewhere and earn more in interest than what you are paying in interest.

Hi Happy
Thanks for your reply. I agree that the biggest part of my mortgage is a good deal but it's the more expensive fixed rate part that I want to pay early and this is the part that incurs the fee. The other part has unlimited overpayments. I really want to pay my mortgage down so that I own my home by the time I retire. As it is, my mortgage will run 3 years into my retirement and I'm trying to avoid using my pension lump sum to clear it.

getmore4less

Missu wrote: »

Thank you for the figures, it will help me think through my options.

My 0% debt will be gone in the next 3-4 months although the deal lasts until this time next year. I really want to say I'm debt free so to pay this off is very important to me. I'm on a relatively high salary now so even with overpaying by the amount discussed, I'm still able to save as well. I know I'm lucky but I've worked hard over the past 5 years to gain promotion albeit a bit late in my career!

If that make £500pm-£800pm easy in that there is still more disposable I would look at the shorten the term option of the of the mortgage.

Debt is debt, you won't be debt free till the mortgage is paid.

if you changed the term of £25k @ 4.64% from this May till the fixed period ends(probably the shortest term you can do) from your posts that looks like Aug 2016 that's 28 months lets say 30 and the overpayment limit can be used to shorten further.

£25k @ 4.64% 30months is £885pm < £650 more than you pay on that part now.


I would look at this option and a reschedule of the 0% interest to use their full terms to get the mortgage payoff started.

If this would be affordable and still give some extra money to save/enjoy life I think you will have a good balance for 2.5 years.

the £55k will be £43k then and redirecting the £855 on top of the £519pm making £1374 that will be paid off in 33months so total just over 5 years from now.

THE RISK IS your contractual commitment goes up for 30months, how safe is the job.

If you have a pension lump sum due the keep the 2.5% and save might be an option worth looking at.

[Deleted User]

Debt is debt, you won't be debt free till the mortgage is paid.


THE RISK IS your contractual commitment goes up for 30months, how safe is the job.

Hi again GMFL

My worry would be my job might not be here in 5 years or that my health may not enable me to continue full time in what is a stressful and demanding role.

I know that mortgage is debt but I have a healthy LTV so I see the debt as being supported by a tangible asset. Credit card debt however I see as a weight around my neck.

Thanks again for your input and support

Yorkie1

If you are not certain about being able to sustain the much higher payments throughout the period of your fixed term if you shorten the term, then I would not shorten the term because doing so could put you under significant pressure if anything were to happen as described.

Another option could be to overpay as much as permitted, and stash the rest in regular savers e.g. First Direct (£300 pm @ 6%) until you retire, and then use those funds to make the mortgage payments after retirement until the end of the fixed term - at which point you can pay any amount without penalty.