35k savings 40K left in mortgage.

Rossboy

Hello,

Im wondering if anybody can help me or offer advice.
My mortgage is up for renewal in 6 months. I have 10 years left on my current mortgage(40k balance left) which the last 2 years i have made max 10% overpayments. Im wondering if i should cut my 40k down to a 2 year fixed mortgage which i can get for about £1650 a month and use my savings as an oddset each month to contribute to the mortgage payment.which in 2 years would use all my savings up and have me mortgage free. Also i think it might save me about £3500 in interest. As the rate 1.88% i can get on the 40k would be over 2 years and not 5/6 years due to sticking with my smaller payments and overpayments taking much longer.

Hope somebody can offer me a little advice. I really only just thought about this tonight after reading an article.


Thanks :-)

GoingOn30

Yes that sounds like a good idea.
Make sure in the meantime you have got some of your savings in high interest current accounts as you could be earning 3-5% interest on at least part of your savings for now.

ceh209

I was looking at cutting my mortgage down to be 2 or 3 years before I moved. My mortgage provider at the time said their minimum term was 5 years, I don't know if it's the same for all so worth considering. However I could have had a 2 year fix within that and still overpaid so it would have worked out similar anyway.

Another thing to consider is do you want to use up all of your savings? If you commit yourself to a shorter term like that, what will you do if you lose your job? Maybe going something like 5 years is sensible so you have some cash for a rainy day aswell.

ACG

No idea what your income is, but despite having the Mortgage as savings, you would need to pass affordability checks at £1650 a month.

The alternatives could be:
- An offset Mortgage, costs more, but as you have about 80% of your Mortgage balance in savings, it could end up costing you less.
- A Mortgage with no early repayment charges.

But it could be worth speaking to a broker. I only have limited information to work off so those suggestions might not be right for you.

sal_III

GoingOn30 wrote: »

Yes that sounds like a good idea.
Make sure in the meantime you have got some of your savings in high interest current accounts as you could be earning 3-5% interest on at least part of your savings for now.

Which ones do you have in mind? All that I know off are pretty much useless unless you are already banking with that bank, as they require you to have a "main" current account with them and then the savings are limited to couple of 1000's for a year or two with the total interests in the region of £100, you might as well just switch to someone that gives £100-150 switch bonus outright.

Niv

In your situation I would chuck 20k at it in 6 months time then re-fix the balance for X years. The interest would be minimal and would still have savings in the bank for a rainy day.


Another thing to consider is; what could you be doing with your savings? Could it earn you more than the interest rate on your mortgage? So for instance could you put it into a S&S ISA for ~10 years and earn more in interest than you are paying on the mortgage (I believe the average returns on S&S ISAs over 10years is about 8% - that is not a guarantee though of course).

jennifernil

I would investigate what the minimum amount a lender will lend is, and what the minimum term is, then see whether that is affordable out of income.

If so, I would use some savings to reduce my borrowing to that amount and continue to make overpayments, if allowed and affordable.

I would not use up all my savings, you do need a safety net.

AnotherJoe

My advice is, your monthly mortgage payments are trivial so instead of focussing on the "headline" of paying it off, let time (and inflation) take care of it over the next ten years since you would almost certainly be better off putting those overpayments into a pension.

Rossboy

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madvicker

It might be best not to remortgage. With many mortgages once you are on the SVR and not on a fixed term, there is no early repayment charge. So if I were you, I would check if you have early renewal charges once your term expires. If there are no charges, which is likely, then don't renew - put the £35k saving straight into your mortgage, and overpay the rest for 6 months afterward at ~£900 a month. Of course, this is if you really want to go debt free in the shortest possible time.

Edit: I have made an assumption that your income could support £900 a month for 6 months. Obviously, if this was going to be from your savings then the best thing would be to find the minimum loan, pay off the difference between that and your outstanding balance with savings. Fix for the minimum term they allow and just continue to make overpayments.

Rossboy

Thanks for all feedback so far some great points mentioned.

My savings are in High interest ICIC accounts. I have small amount of savings beyond this 35K so it is al for my mortgage if that is what it works out best to do with thay sum.

AGC- great point, no my income will now allow me to have a mortgage with £1600 for example so that might not even be an option.

NIV- an 10 year ISA might be better but i would like my mortgage paid. Then i am never tempted to use any money i have coming out on a fancy car or holiday in future. Its all invested. Personal choice.

Another Joe- as above, if my mortgage is paid the money isnt available for other things, i maybe do need to look at my pension plan tho.


Madvicker- best point yet, i never knew that was available as an option so i will call my mortgage provider tomorrow and ask that question exactly. Ps yes could handle £900 a month easy over a few months. Any other points?

Cheers all