Better to keep interest only and save or switch to repayment

Magpie20040

Hi there.

We have £227,000 on interest only (to enable us to do the house up). We have 14 years left on the mortgage term and planned to switch to repayment in a couple of months.

The rate is a lifetime tracker BBR plus 0.99% so currently very low payments.

My question, is are we better to switch to repayment, or put the money in an ISA or fixed term savings account (taxed at higher rate) and pay this off the mortgage as a lump sum. There are no early repayment charges.

Many Thanks

getmore4less

Save/invest if the return(net) is more than the mortgage or overpay, going to repayment just commits you to a higher payment.

Here are the numbers for current rate and a couple of 0.25% rises
£227k 14y
rate......I/O......repayment
1.49%..£282....£1498
1.74%..£329....£1524
1.99%..£377....£1550

you need to be saving/investing/overpaying £1200+pm

if high rate taxpayer pensions are an option.

Thrugelmir

Save where you can obtain an an after tax return of 1.49%.

Though maintain easy access. As you don't want to be in a fixed term product if borrowing costs rise.

ItsOKtheyknowmehere.

I was searching the forum to see if anyone had asked this question, so thank you for this answer it helps a lot. I am a carer and had to give up my job in NHS 2 years ago at age 50, so that's my pension shot to pieces. My mortgage is just over £40k with 14 years left to run and I am on interest only but overpay by £35 each month and wondered if I should move to repayment but think I will stick as I am. Thanks getmore4less.

dimbo61

You are on a good tracker deal right now at a Very good rate which you do not want to lose.
Why not overpay by £600 a month and save £600 a month into Cash ISA,s /regular savers that pay more then 1.49% after TAX

Magpie20040

Thank you everyone for your time and feedback. I hadn't thought of splitting the money I'd spend on a repayment by repaying some of the capital and investing some. This may keep my husband happy who dislikes the fact we aren't reducing our mortgage but takes advantage of our low rate. Many thanks.

Thrugelmir

Magpie20040 wrote: »

Thank you everyone for your time and feedback. I hadn't thought of splitting the money I'd spend on a repayment by repaying some of the capital and investing some. This may keep my husband happy who dislikes the fact we aren't reducing our mortgage but takes advantage of our low rate. Many thanks.

You need to ensure that you are saving enough. With a mortgage of the size you have. Rising interest rates could have a significant impact in the years ahead.