Paying off mortgage

Benny130

I know this should be a basic maths calculation but for some reason have a mental block.

As back ground I had to help out my mum with a house purchase. Ive been trying to get her in a position with zero mortgage paying me a small amount of "rent" incase anything happened to me and leave her in a mess financially. The mortgage fixed rate ends in October and £110,000 would remain. Ive been saving hard to be in a position to pay this off but cant work out if this is the right thing to do.

I would get £300 per month from her in "rent". A 2 year fixed rate interest only deal would be 5.51% plus £999 fee with monthly payments of £459. If I didnt pay it off I could put this £110,000 into a 2 years fixed saving account giving 5.86% interest. Baring in mind I'm a higher rate tax payer what is the better option? 

Bigwheels1111

You will be taxed to death right ?.

On any interest.

My own personal opinion is pay it off.

As long as you have an good emergency fund left.

Just watch out for CGT when you sell.

It hurts bad, Im still crying after 2 years.

ZeroSum

What's the 2 year fixed option without the fee? As for £110k the fees often aren't worth it.

You could of course put the money in your mother's name to avoid tax (assuming it doesn't impact on any benefits she gets)

The simplest thing is to pay it off 

Benny130

ZeroSum said:

What's the 2 year fixed option without the fee? As for £110k the fees often aren't worth it.

You could of course put the money in your mother's name to avoid tax (assuming it doesn't impact on any benefits she gets)

The simplest thing is to pay it off 

Montlies go up to 464 

ZeroSum

Benny130 said:

ZeroSum said:

What's the 2 year fixed option without the fee? As for £110k the fees often aren't worth it.

You could of course put the money in your mother's name to avoid tax (assuming it doesn't impact on any benefits she gets)

The simplest thing is to pay it off 

Montlies go up to 464 

So you'd be paying £999 to get a reduction of £120. No brainer pay the £464

Expotter

Just looking at it from an interest rate point of view, the mortgage deal leaves you worse off. The difference in interest is 0.35% of £110k, which is £385 per year gain in interest. So it doesn't even pay for the fee and that's not even taking into account the amount you'd be taxed, which is £6446 (per year) in interest - £500 (PSA) = 5946 , times 0.4 (tax rate) = 2378.4 (per year).

Maybe if you could find a suitable offset mortgage it might be worth it, but this deal isn't. 

Benny130

Expotter said:

Just looking at it from an interest rate point of view, the mortgage deal leaves you worse off. The difference in interest is 0.35% of £110k, which is £385 per year gain in interest. So it doesn't even pay for the fee and that's not even taking into account the amount you'd be taxed, which is £6446 (per year) in interest - £500 (PSA) = 5946 , times 0.4 (tax rate) = 2378.4 (per year).

Maybe if you could find a suitable offset mortgage it might be worth it, but this deal isn't. 

This is the sum that I needed to see. Many thanks! Yes so assuming everything else stays the same I would be better off just paying it off.

Taking it to the extreme a 5 year fixed is 5.12% mortgage and I could get 6% fixed in savings.
Mortgage costs for 5 years = 25860. Interest from 110k = 33000. Less tax = 19800 plus rent 18000 = 37800. Total income 11940.
Or if I jjust payed off total income over same period would be £18000

Thanks for helping me see clearly

Damn tax man