Overpay mortgage advice please

contrast

Thank you MC for exposing a major flaw in my thinking. Outstanding balance is 217617

edinburgher

Therefore option 2 wins over option 1 even if savings rates don't go up unless I find an account with interest over 2.69+1.5 = 4.29% - Unlikely.

I don't see it the same way. Nobody is forcing you to pay an ERC, so you can't lump the cost of the ERC in with the mortgage interest rate to say that it makes option 2 better. Ignore ERCs for a minute, you always want high interest on savings and low interest on debt. The net benefit will always be the savings rate minus the mortgage interest (so saving is better than OPing by 3.92%-2.69%=1.33%/year).

Ed is correct that you can get 5% (3.92 after tax) in regular savings accounts, but these are usually restrictive in either allowing max £500 invested per month, £3000 total etc. Even if you opened several of these accounts you would still probably have the bulk of the money initially held elsewhere, in an account offering presumably a much poorer rate.

These aren't regular savings accounts, they're fixed. Mrs E and I have £10k stashed with N@tionwide and TSB at 5% gross. We could have more accounts at similar rates if needed.

Really sorry, this has me completely lost . Where does the £500 fee come in?

I'm a muppet! I made a spreadsheet and compared OPing £10k with a 5% penalty (£500) vs. saving £10,500. Would have been nice if I'd mentioned that

All this is academic anyway, as you are being gifted a massive sum of money (over £200k). I respectfully suggest that you speak to a reputable IFA, as this would seem to be a life changing sum, and worth more time investigating than forum chatter

How old are you? I strongly suspect that any IFA worth their salt will suggest that you go for a blend of debt repayment and longer term investments.

midnight_child

I did the crossed post thingy again!! :rotfl:

You probably need this.
http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

The easy bits:
Option 1 - See bank
Option 2 - Your ERC at 5% is 11K
Option 3 - Your interest over 5 years, assuming you pay 10% balance annually is approx 23K. Obviously in this time you would still have the money to invest elsewhere. Depends if you can earn more than 23K-11K=12K in interest on it. Its a slightly more complicated calculaton as you will syphon off cash each year to OP with.

MC

contrast

Thanks MC,
your last post is quite clear. I think it may be worth me going down the IFA route and see what they can suggest.

JimmyTheWig

contrast wrote: »

Option1: To get a savings rate significantly over 2.69% I will have to go for a five year fixed. The likelihood is over those five years rates may well go up and I end up losing out.

Losing out compared to what?
If you pay off the mortgage with this money then you won't have the money to put in the savings account in a few years time to benefit from the rising interest rates.

Option 2: There are about 4 years left. If I pay the 5% penalty, spread over four years, that is about an extra 1.2% per year, but I am saving a 2.69% per year. That makes me about 1.5% better off, per year.
Therefore option 2 wins over option 1 even if savings rates don't go up unless I find an account with interest over 2.69+1.5 = 4.29% - Unlikely.

I disagree. You're 1.5% better off from the mortgage point of view. So for option 1 to beat this you would need a net rate on your savings of 1.5%. This is totally achievable.

Option 3: This is where my maths lets me down.

If you can get a net return of more than 2.69% (unlikely, depending on your tax position and that of your spouse, unless you are prepared to take some risks) on the savings then don't pay off the mortgage. If you can't get 2.69% net on your savings then pay off what you can for free as soon as you are allowed to.

Hurdler

At it's most simplest I would say pay off what you can and try and invest and save to drip-feed other payments as and when you can.

It's always difficult when charges come into play.

Definitely talk to a reputable IFA and remember they are there to make money off you. I used unbiased.co.uk - hope that helps.

contrast

Thanks for the advice H. I've sounded out a couple of IFAs in the area and see what happens

ViolaLass

contrast wrote: »

I have a meeting with my bank to see if they can offer a rate around 3% but looking at whats about, maybe 1.5% is more realistic

I wouldn't bother going to the bank to ask about savings accounts, not least because all the info you need is on this site.