Worth paying a lump sum off now or wait?

chelseablue

I currently have £90,000 mortgage outstanding on my flat.


I'm on a fixed rate until August 2016, although I can pay off 10% of the outstanding balance per year.


I was going to pay £9,000 off now, but is it better to wait until the fix is up next year and put the lump sum in then?

lee111s

The sooner you pay, the sooner you stop paying interest on that £9,000 owed.


What's your current mortgage interest rate? If you can get a better savings rate than you're paying on the mortgage, then you're better off keeping it in savings and earning interest.

chelseablue

Current rate is 2.29 %

lee111s

You could put it into a Santander 123 account which gives 3% on savings. You'll also have the benefit of having some money aside should your boiler need replacing/roof need repairing etc.

chelseablue

I already have a 123 account that is full up (£20k)
The money I'm thinking of using is sat in another account (def lower than 2.29%)

lee111s

Then pay it off and reduce the interest you're paying.

ed67812

What's your current mortgage interest rate? If you can get a better savings rate than you're paying on the mortgage, then you're better off keeping it in savings and earning interest.

Also when you come to get a fixed rate, bear in mind that the decision to keep the money in a savings account or pay off more mortgage is not as simple as comparing interest rates;

1) You'll pay tax on savings income normally and so this decreases the actual rate. AND

2) Lets say your 20K savings earn 2.4% after tax and the fixed rate mortgage that you get is 2.2% then on the face of it you are better keeping money in the savings account.
But using some savings might reduce your loan to value rate to a point that offers you a lower interest rate. As this lower interest rate applies to your entire mortgage debt, the savings can huge.