pay mortgage or save? (Merged)

clarem_3

I have a very small mortgage of £27k. It's an endowment mortgage with a shortfall currently of £7k. I have savings of £10k, should I put that in an ISA/savings account mix or use to put lump sum into my mortgage then switch to repayment mortgage. (I don't want to look at the option of cashing in the endowment)

aanyaverma

I am sorry if it is asked elsewhere on the forum ...

I have 140K (halifax) mortgage and can spare extra £500 every month after using my normal tax free savings allowance ...

I have 2 years fixed deal on 3.75% which will end in Sep and will then convert to 6.5%

I might look for another re-mortgage offers when time comes but for now ... does it makes sense to put those £500 in the mortgage as I can supposedly pay extra 10% of the mortgage amount in repayments every year ...

Thanks in advance for any advise ...

grumbler

If you are a basic rate taxpayer (20% on savings interest) you will be better off now if you put money even into instant access saving account: 5.35%*0.8=4.28%>3.75%. However, there are regular saving accounts available that pay 8%(HSBC), 7%(Halifax), Principality BS (6.75%)…
Even for 40% tax 7%*0.6=4.2%

Everest

While I agree in principal with Grumbler, I think there are a couple of other things to be borne in mind. Firstly, will you manage to get a remortgage rate as low as the one you currently have? Secondly, interest rates are about to go down, it would seem, therefore you may not be able to receive so much interest as Grumbler's calculations would suggest.

If you do not need this extra £500 a month for anything else my advice is put it towards paying off your mortgage. Of course if your plan for the savings is to only keep it until you remortgage then assuming all things equal as they are in your question, save at as high a rate as possible then use the savings to cut the amount you need to remortgage by when you come to make the change...best of both worlds.

isasmurf

Not having a mortgage I haven't thought too much about this, but I'd always thought that if I was in this position I'd probably either find an offset mortgage or one where I can make 'overpayments' that I can take back.
Paying off the mortgage would mean my savings are gone forever, doing it my way my savings would be used to reduce the interest but would still be available if I needed them.

isasmurf

***From the Board Guide ***
aanyaverma - I'm merging your thread with another similar one started yesterday. I'm sure the answers will help both of you asking this.