Compound interest query.

pipis118

Hi, I'm 31, in a decent job (40k ish) and have a mortgage of around 90k with my partner, she works part time for around 13k. We have no other debts.

We have maybe a 2k savings at the moment and pay extra on our mortgage which will be paid off in 14 yrs at this rate. I want to know if i should clear my mortgage before trying to save via means of compound interest, which i have recently read about- and boy do i wish i had read that 10 yrs ago! We are considering upping our mortgage payments to £1000/m which is £250 more than we are paying now, but then we will have nothing to save, the sums with the compound interest really intrest me and i would pay probably £200/m into an account for that. Would that be used as an investment, ie "gambled", or just an account with as much interest as possible or even an isa?
Sorry its so long winded, if you gave up half way through its understandable!

Lokolo

The deal is, pay off debts first, save later.

However, I would suggest you max out on your cash ISA's (2 each), if you have £6k (2x £3,000) now then thats good. The April 6th new ISA's can be taken out at £3600 each. Just keep doing this.

When you have paid off your mortgage in 11 years (I will get onto this) you 2 will have a nice load of money to do whatever you want with tax free.

Now, pay off at £1000 a month if you can afford it, don't get into anymore unessceary debt as you want to get rid of mortgage ASAP, its a debt, no-one likes a debt.

p.s. I just read you are on £40k and parter on £13k, and you said that you can't really afford to save and reduce mortgage, thats fine. Go on a shopping low, there are a few things around here with tips on saving money, don't worry about saving the maximum in ISAs, just save as much as possible, i am sure you wouldn't mind a trip to the bahamas in your mid 40s without a mortage.....

kingmonkey

Depends on the rate of the mortgage really.

CLAPTON

assuming your mortgage APR is higher than your saving AER (net of tax) then pay off the mortgage (you're paying compound interest on that )

Jonbvn

Hi,

There is a Mortgage Free forum.

Generally speaking, the consensus seems to be to fill-up your cash ISA's before overpaying. The reason being that ISA's are tax-free, and in most cases offer interest rates higher than mtg rates (although not always). If you do not use an ISA in any tax-year, then it is lost forever.

Personally, we are fortunate enough to overpay and have ISA's each year. It may be worth considering hedging your bets and overpay a part of your additional cash, and save a part in ISA's.