Advice on Mortgage rate

Maverock

Hiya all. Just a quick question.

I was planning on putting some savings away for my retirement in about 4 years' time and decided to look at my mortgage first to see if paying it off early might be more suitable.

However, I cannot work out what the APR is.

Interest of 1.45% is added monthly, would I be correct in thinking that this equates to 17.4% per annum?

It does seem rather high.

Please advise.

Many thanks for your time.

Southend1

Are you sure it isn't 1.45% annually, calculated monthly or calculated daily and added monthly?

Maverock

Thanks Southend1, I think you may be right.
Jan 2015 Opening balance £11704.02
Payment £240.45
Interest £14.41
Closing balance £11477.98

Maverock

I must confess that last month I instructed my bank to increase payments off my mortgage to £400 starting in February, but am thinking that it may make more sense now to take that extra money and Start up an ISA. What do you think?

I must point out that my Stakeholder pension already has the maximum 5%.

Many thanks.

Southend1

The normal advice on here is to overpay the mortgage only if the interest rate on your mortgage is higher than you can get on your savings. So if you can get better than 1.45% net of tax stick it in your savings account for now.

Maverock

Many thanks again Southend1. Will look into doing that.

edinburgher

Another option you don't seem to be considering is your pension. I note you saying you're already paying the maximum 5% - by that I assume you're paying 5% to get the employer match?

You will probably still be able to make additional payments into the pension, benefiting from tax relief being added to your money. This would effectively reduce your tax in retirement, as you can take a 25% PCLS.

As an example, if you pay in £80, the government will top it up to £100. In 4 years time (assuming you don't lose it all in a stockmarket crash ), you will be able to withdraw £25 free of tax and £75 at your normal tax rate (basic, higher etc.) For a basic rate tax payer, this would reduce your effective rate of tax to 15%.