Fixed Rate Mortgage

dosh1

Hi

Quick question.....

If I am currently paying 1.74% interest on a mortgage and I can save in ISA that gives me 2.00 interest (tax free). I am right in thinking saving in the ISA is more beneficial than potentially paying the mortgage company monthly (overpayments)?

Am I missing other costs that I need to consider?

Mortgage_Moog

I'm new to mortgages but after reading through the fine print of my contract, it depends on how much you pay off each month as to what is done with it.

If I was to pay an amount equal or less than three of my monthly mortgage payments then it pays off some of the mortgage. If I was to pay an amount over 3 months worth of payments then it goes into a prepay account and allows me to "miss" mortgage payments as they can take it out of that prepay account instead.

It's a bit confusing but I thought maybe that is something you'd have to look into to see whether any amounts you pay would actually be paying off the mortgage or if there's a limit to how much you can pay off before it just goes into a prepay account.

TrickyDicky101

dosh1 wrote: »

Hi

Quick question.....

If I am currently paying 1.74% interest on a mortgage and I can save in ISA that gives me 2.00 interest (tax free). I am right in thinking saving in the ISA is more beneficial than potentially paying the mortgage company monthly (overpayments)?

Am I missing other costs that I need to consider?

Correct...

anna42hmr

Correct but you may also want to take other things into consideration.

For example will overpayments during this term allow you to drop down a loan to value bracket when the fix ends - if so you may be able to fix a second time at a lower rate.

In my instance Fo example I can over pay by 10% per year without charge and I am aiming to drop a ltv bracket by time this fix ends, however if for example I did not op in year one, the op's I would need to make could take me over the allowsed %. Whilst I could wait till the actual fix ends and then make an op, that would mean with my lender I would need to wait till the fix ends, make an op and then start the process of. A product transfer (and thus being on standard rates for a period)

Other factors include that many times the over payment element without charges is more a good will than a contracted right as such, and therefore could be pulled at any time, thus loosing the option.

Some people also like to see a mortgage coming down in the meantime faster, knowing the debt will be paid quicker and paying less interest.

Also if you are saving with the intent to use the money to over pay in the long term, make sure you have the will power not to divert the funds elsewhere for that holiday etc!