HELP - what to do?

ptben

We have recently accepted an offer on our current house for £200k. We also have had an offer accepted on our new property of £156k. So, there will be £44k spare cash after the deal.

We took out a £110k mortgage on our old property which we would ideally like to reduce to £66k using the cash made from moving. Our mortgage lender only allows us to pay 10% (£11k) of the balance each calender year without a fee. If we want to overpay by the full £44k we would be charged 3% of the remaining balance (a fee of £1980).

Which is the better option

A) Pay the 3% fee
Only pay off 10% and put the remainder in a high interest account hoping it makes enough money to cover the extra interest on the remaining mortgage balance. Then pay off 10% each year using the money in high interest account.

I hope that makes sense. I'm struggling to see the wood from the trees.

KiKi

Hi there - when you say 'old property', do you mean a whole, separate third one, or do you mean the one you've just accepted a deal on for £200K??

If you mean the one you've just accepted a deal on, you won't reduce the mortgage to £66K - you'll have to clear it completely!! You can't have two mortgages on a property (because the new owner will have one).

You get £200K from the new buyer. £110K will go to paying off that current mortgage. You will get £44K back, minus solicitors' fees and any early redemption fees.

However, if you're saying that the £110K mortgage is a third property, and *not* the one you've just sold, then ignore the above! Instead, look at the interest rate on that property. If it's 6.1%, then to make it worth your while, you have to invest the £33K into an account that pays MORE than 6.1% AFTER tax, and that allows you to withdraw each year. Highly unlikely you'll find that, so I'd personally pay the fee.

HTH you.