Overpay or save?

freeasabird

I have an interest only mortgage at the base mortgage rate of 2.5 percent. I changed it to an interest only mortgage when I lost my job. I've used the money from temporary jobs to overpay on the mortgage as there is no penalty for doing so.

I now have a stable job with a regular income and I have £16,000 left to pay when the mortgage term ends in 2 years time

I don't think it's worth getting a repayment mortgage especially as there's no penalty for overpaying on the mortgage.

As the savings rates are so low; would I be better off trying to pay off the mortgage asap through lump sums and upping my regular payments or should I just make regular payments until the mortgage term ends in 2 years time?

The complication is that I am a joint tenant (with a relative).

brightonman123

with just 2 years left, i think you are likely to just be paying off mainly capital now?

ask lender for a statement, showing breakdown of capital / interest that your current payments do, and maybe some projections?

sebtomato

If you can clear the £16,000 balance before it's due, then you should pay it off as soon as possible, with lump sum payments.

If you don't think the money could earn more than the mortgage rate, when put in savings account, then you should pay off the mortgage first.

getmore4less

brightonman123 wrote: »

with just 2 years left, i think you are likely to just be paying off mainly capital now?

ask lender for a statement, showing breakdown of capital / interest that your current payments do, and maybe some projections?

The mortgage is INTEREST ONLY.

getmore4less

£16000 @ 2.5% over 24 months repayment £685pm (I/O £34pm)

make sure you overpay by at least £650pm on average(get ahead if you can)

Paying more each month if you can you can always go lower or down to £33 if a month is tight as long as you stay ahead of the average required.

if you can scrape together £907pm(total) you pay it off in 18 months

pete-20-11

Have you thought about high interest current accounts first - e.g. 5% at Nationwide and TSB, up to 4% at Lloyds (all pre tax).

If you are a basic rate tax payer, you can beat the mortgage rate, and if a higher rate tax payer, anything over 4.2% pre tax should beat the mortgage rate.

Plus, have you considered building up an emergency fund? 3-6 months wages?

freeasabird

I'm going to open a current account with a decent interest rate and I'll build up an emergency fund of at least 6 months salary especially as it might take a while to get another job if I lost this one. If getmore4less' projections are right; I need to make a bigger regular mortgage payment than I thought (my calculations were around £560 a month). Thank you all for taking the time to reply to my post.

getmore4less

How did you get £560? always worth a double check and understand where one of us went wrong.

Might be exact amount is a bit smaller and a bit longer than 2 years

I use a simple sanity checks or guess a ballpark figure.
£560*24 = £13440, £16000/24 = £667

freeasabird

So sorry, I forgot to take into account a lump sum payment that should bring the mortgage down to £13000.

In that case, I hope £560 is now correct?


Thank you getmore4less.