Paid Off One Mortgage, What To Do With The Surplus?

decadentlywasted

Hi folks,

I'm after a bit of advice on my options, given the scenario below:

Sold my old house recently and, after clearing outstanding loans and putting aside a bit to do up our new house, we're left with about £60k. We currently have a 2 year fixed rate interest only mortgage of £160k on our new property (ING @4.95%, taken out March/April this year). We can overpay 10% of the ING mortgage in any 12 month period and I'm not too sure what the redemption penalties are if we repay early (a % of the loan, but I'm not sure how much).

So, at the moment it seems like a good idea to pay off the 10% each year and put the balance into a savings account, then use the interest from this to part-fund the repayments on the mortgage. At the end of the two year period, change to a repayment mortgage and overpay to reduce the term a bit.

Before I get into this though, I was wondering if there were any other options that might be as good or better? The other things that might influence this are two endowments - one that's anticipated to pay out £16k in 2011 and one that's anticipated to pay out £23k in 2017 (worst case figure for both).

Any comments/suggestions welcome. Thanks.

Claire_Jones_3

You would have to check with ING but I know with some mortgages you can pay your 10% allowance and also up to double your monthly payment or a capped amount extra. (With C&G you can do double, with nationwide its limited to an extra £500) That would help you to reduce the balance quicker but at a rate of 4.95% you could possibly earn more interest than what it would cost on the mortgage. The only thing to bear in mind is paying tax on savings as that would reduce the rate you are actually getting, possibly even more so if you are a higher rate tax payer?