What will I save ?

itc262626

Hi,

I'm new to this so apologies if I am asking something that has already been covered, but I can't find any info on exactly what I need.

I will be chagning my mortgage in April when the fixed two year term is up and want to look at my options for over paying. I intend to move in a couple of years so I'm planning to get another 2 year fixed mortgage. What I would like to try and do is over pay for those two years so that when I come to sell my house I have more money for a deposit on a new house. How do I work out exactly what IU will save over this two year period and what I will owe at the end of the two years? The calculators that I have seen seem to tell me how much I will save in years and money over the life of my mortgage rather than over a shorter period. When I move I will then also overpay, but intend to be living in my net house for much longer.

I probably intend to over pay by somewhere between £50 and £200. I would also be interested if people think it would be better to save the money in an ISA towards a deposit, or will I save more money this way round ?

Any help greatly appreciated.

JonnyBravo

itc262626 wrote: »

I probably intend to over pay by somewhere between £50 and £200. I would also be interested if people think it would be better to save the money in an ISA towards a deposit, or will I save more money this way round ?

Any help greatly appreciated.

Yep the amount youre talking about overpaying wouldnt even use all your cash ISA allowance for a year. You can usually get a better rate on this than you have with your mortgage taking this into account, so odds are, saving this way is better for you

itc262626

So am I right in thinking that if I were to pay off £100 extra for 2 years I would just owe about £2400 less at the end of two years. Wheras if I put the money in an ISA at the end of two years I would have £2400 plus interest to use ?

Thanks

JonnyBravo

itc262626 wrote: »

So am I right in thinking that if I were to pay off £100 extra for 2 years I would just owe about £2400 less at the end of two years. Wheras if I put the money in an ISA at the end of two years I would have £2400 plus interest to use ?

Thanks

No.... you would also save whatever interest you would have been charged in the mortgage.
The crucial difference is you wouldn't lose any tax off your ISA interest (it's tax free obviously)..... with saving large amounts of money the loss on the tax would usually make the saving rate worse than your mortgage interest rate (in most in most cases). That isn't the case here as your £2400 a year is easily within the tax free limit.

Plus of course it may be useful to have the cash sitting to be used for fees etc associated with moving costs rather than "tied up" in your equity.

It's a no-brainer if you ask me.