Can Anyone Help Me With A Question

49clare

Hi everyone - I have been reading MSE website for sometime and just registered as a forum user.

I want to be mortgage free asap - we have just remortgaged and i've found out we can make overpayments. We currently owe £55,000 on a fixed 6.25% deal.

Can anyone tell me would I be better off paying £1000 lump sum (used of savings), rather than £100 a month standing order? The overpayments are deducted the same day for interest purposes.

Can anyone tell me what the difference in interest would be?

Thanks for your help.

JonnyBravo

Depends on what your saving rate is Clare. If it's higher than 6.25% net (unlikely admittedly) you wouldnt be better off at all!

torbrex

Presuming that you are a basic rate taxpayer, you would need to get an interest rate on your savings of over 8% gross to make it worth while. If the overpayments are deducted from your capital straight away then I would be tempted to set up the £100/month payment, that way the interest charged next month will be less and hence your overpayment will be slightly higher and so on every month.

gallygirl

However, if you have the £1000 now then pay that off now & save the interest on the whole amount rather than on £100 a month. But then pay £100 as well! (Assuming you can pay up to 10% off a year).

Welcome to the complex world of paying off your mortgage

49clare

Thanks for all your replies - thats the point I was getting at - i'm not looking at it from a savings point of view -
surely the interest saved off the capital would be more if I paid the £1000 rather than the £100 p month.....

Thanks again:T

JonnyBravo

torbrex wrote: »

Presuming that you are a basic rate taxpayer, you would need to get an interest rate on your savings of over 8% gross to make it worth while. If the overpayments are deducted from your capital straight away then I would be tempted to set up the £100/month payment, that way the interest charged next month will be less and hence your overpayment will be slightly higher and so on every month.

Not sure about your logic here.
Ok if we assume overpaying is the right thing to do... which is yet to be established....
If your overpayments are deducted from capital straight away (daily interest etc) why wouldn't you pay off the £1k straight away?

As for the tax aspect... that would depend on whether it was in an ISA or not.... or indeed whether Clare pays any tax.
:rolleyes:

torbrex

JonnyBravo wrote: »

Not sure about your logic here.
Ok if we assume overpaying is the right thing to do... which is yet to be established....
If your overpayments are deducted from capital straight away (daily interest etc) why wouldn't you pay off the £1k straight away?

As for the tax aspect... that would depend on whether it was in an ISA or not.... or indeed whether Clare pays any tax.
:rolleyes:

Sorry my mistake, I took it that OP was going to save until they reached £1000 before paying off mortgage I did not realise they already had the cash. In that case, yes pay off the £1000 up front.

My only excuse for mistake, it has been a long week.:o

gallygirl

torbrex wrote: »

Sorry my mistake, I took it that OP was going to save until they reached £1000 before paying off mortgage I did not realise they already had the cash. In that case, yes pay off the £1000 up front.

My only excuse for mistake, it has been a long week.:o

Hate to tell you this Torbrex but it's only Thursday .

I know what you mean though