Savings account or lump sum to mortgage.

Kerrvin

Hello all. 

After selling a property I have about 85k to do something with. 

Current mortgage rate for property I live in is 1.59% until 2025. I can over pay 20% penalty fee.
I have been looking at fixed savings account for 1 year which are about 6%.

I only earn 10k per year working part time. I was thinking about putting the money in a high interest savings account until 2025 and then clearing my current mortgage.

Earning only 10k means I probably won't have to pay any savings interest, I don't think.
Am I right in thinking the sale of my property won't affect my income with regards the saving interest?

Just trying to weigh up paying big sum to mortgage now or waiting until my fixed term ends, since its on such a good rate.

Any advice gladly welcomed

Dazed_and_C0nfused

If you haven't applied for Marriage Allowance then you can have £8,570 in interest, on top of your £10,000 earnings, without having any tax to pay.

The first £2,570 of your interest will use up your spare Personal Allowance.

The next £5,000 will be taxed at 0% (savings starter rate).

And the next £1,000 after that will last be taxed at 0% (savings nil rate).

If it was a property you received rental income from that could alter the figures above.

But selling a property won't impact how any interest is taxed.  But the interest being taxed, even at 0%, could impact any Capital Gains liability arising from the property sale.

£85,000 earning 6% is £5,100/year.

Sounds like a sensible idea whilst your mortgage rate is so low.

Kerrvin

Thank you @Dazed_and_C0nfused for the indepth reply.
There has been no rental income this tax year and I think I am going to have about 3k capital gains to pay within the next 60 days.
The interest on a fixed 1 year savings account will fall into the next tax year I assume? 

Dazed_and_C0nfused

Kerrvin said:

Thank you @Dazed_and_C0nfused for the indepth reply.
There has been no rental income this tax year and I think I am going to have about 3k capital gains to pay within the next 60 days.
The interest on a fixed 1 year savings account will fall into the next tax year I assume? 

Unless you choose an account where you can have the interest added monthly then yes.