Mortgage V Savings Senario

ciscobloke1

Hi All

1st Visit to this forum and forgive me if my questions/logic seems stupid.

I am due to come off a fixed term deal soon and am looking to lock down again for another 5 years fixed.

I think I have found the product that suits my needs, however the question is, do I stick the full £94k/20.5 years remaining balance on it, or do I reduce the balance to £55k and term to 10 years.

Obviously I would save a shed loads of interest doing this, but it would mean putting the majority of my savings into it, hence no interest for the next 10 years and then starting saving for futre after mortgage free.

When I have used several calculators they all seems to work out I'd be better keeping the mortgage the same and sticking the £40k i have into high interest savings. I know savings after tax are usually less than AER but as the interest paid goes down on the mortgage over 21 years... my savings grow each year.

So question - Should I pay off and reduce my mortgage as much as possible now, or keep it the same and save my £40k over the next 21 years in high interest accounts ?

Cheers
Mike

Moneygoes2money

What is the interest rate for the new 5-year fixed rate mortgage?

What is the interest rate for the savings account where your capital is/will be deposited?

What is the tax rate of the person whose name the savings will be deposited in? (i.e. basic, higher)

Kaz2904

Moneygoes2money wrote: »

What is the interest rate for the new 5-year fixed rate mortgage?

What is the interest rate for the savings account where your capital is/will be deposited?

What is the tax rate of the person whose name the savings will be deposited in? (i.e. basic, higher)

Absolutely the right questions to ask.
The thing is that if you are cashing in ISA's to pay down your mortgage then it may not be worth it. You could always look into an offset mortgage whereby you would still have your savings accesible. Also would you continue to be saving monthly or would you current savings never be built up again until the mortgage was clear?

ciscobloke1

Hmmmmm the new fixed rate is 5.99% for 5 years but theres no fees to pay so it works out similar to other slightly cheaper deals with fees.

what my thinking is now is to keep the full £94k over 21 years but to round up the £656.38 pm repayment to £1k (more if my money situation allows it upto the 10% allowed without penalty, i'm commission based mainly). This way I can reduce the mortgage by roughly half its length to 10 years. And keep my nest egg in case I need it.

What do you think?

Kaz2904

Are your savings in ISA's or could you offset them against the mortgage without losing your ISA allowance.
You could then offset the savings and overpay thus making an even greater saving and clearing it quicker than 10 years (and having the savings available should you need them).

Kaz2904

having just been to www.whatsthecost.com/snowball.aspx I worked out that if you took a mortgage of 94k at £1000 monthly repayment (5.99%) it would be clear in 127 months.
If you could immediately offset your savings and therefore have a mortgage of 55k then a £1000 monthly payment would mean you were completely clear in 65 months.

ciscobloke1

Forgive me for being stupid in advance...

So if i offset my savings against the mortgage i can pay it off loads quicker, but do I still have the £40k at the end of the shortened term?

You say i still have access to the savings etc... so does this mean that if i dont need them they after almost 6 years and the mortgaeg paid off will have all been used for this purpose. Or after 6 years do I still have my inital £40k?