Pay 10% or not?

Strepsy

Hello,

I'd really appreciate if someone could help me, I'm battling to understand all the financial info but maths really never was my strong point.

I've just checked the terms of my mortgage and I can only pay off 10% until the 31st October when my 2 yr contract ends, or I'd incur over £1000 penalty.

So, is it worth paying the 10% off straightaway, or would I get more for it in a savings account?

My mortgage interest rate is 6.34% variable. It is capital and interest. 18yrs 8 mths left. Balance £41281.30 so I could pay off 10% = £4128.

evab_2

I don't really know and I'm sure someone will help, but I would imagine it depends on the interest rate of your savings account so you can work out the how much you would save on the mortgage compared to how much you would earn on the savings.

Capricorn_One

It would surely be better to pay it off if you can afford to do so. The only savings a/c that would compete is an ISA. The others you would pay tax on interest earned.

To see the effect of overpayments on a mortgage:
http://www.channel4.com/money/homebuying/overpaycalc.html

Although that's monthly, it still makes pleasant reading.

Alternatively pay £3000 into a cash ISA and the rest to the mortgage. You'll be glad of the tax free compounded interest in a few years.

I'd be interested in any better ideas (seriously!).

Ed.

Strepsy

Thanks for the link Capricorn One. Will check out ISAs and that link.

dimbo61

check first with your lender how much you owe on your mortgage
and then ask how much is 10% from the start of the year !!
can you pay that amount off without incuring penalities.
6.34 % would be hard to get from an ISA at the moment so pay
off 10% if you can .
fill your ISA,s allowance for this year £3000 and £3600 after april.
see what deals you can get in october and pay a lump sum off if higher rate
than you are getting from your isa,s .
good luck

Prudent

As others have pointed out, it would be hard to get the same benefit in interest. It is also just lovely to see tha balance owed going down. I paid off my mortgage early. I was lucky in that my policy allowed me to pay off everything except the last £100 during the fixed rate period. I then just paid £1 per month until the redemption penalty date past. Last week I paid off the last £100 and the discharge deeds and on Wednesday I had my deeds in my hands :T

Capricorn_One

:rotfl:

Prudent wrote: »

As others have pointed out, it would be hard to get the same benefit in interest. It is also just lovely to see tha balance owed going down. I paid off my mortgage early. I was lucky in that my policy allowed me to pay off everything except the last £100 during the fixed rate period. I then just paid £1 per month until the redemption penalty date past. Last week I paid off the last £100 and the discharge deeds and on Wednesday I had my deeds in my hands :T

Well done Prudent!