When is best time to pay off mortgage?

Suzkin

Hi All,

I've a small mortgage (just under £20k), and although I cannot afford right now to pay it off in one lump sum, I was wondering whether there's a good time during the month to get rid of it?

It's a repayment mortgage and payments go out on 1st of the month. I'm making the max. overpayments I can. It's a fixed rate product and so technically I'm locked in for another 4 years. (The redemption penality is currently about £600).

However, if I wait for another 4 years, the balance will be approx. £11.5k BUT I will have already paid £7,680 in monthly payments to reach this date....It's never ending!!

Many thanks.

dimbo61

Hi suzkin
The best time to clear your mortgage is when you have the funds to
pay it off without any nasty penalties.
As you are already making the max overpayment each month then the
next course of action is to fill your ISA allowance and get the best rate
IE barclays 6.5% or lloydstsb 6.5% on £9000+
You did not give your mortgage rate so check and see if you would be better off with ISA,s rather than overpaying your mortgage !!
If you can fill an ISA for each of the next 4 years thats £300 a month
then at the end of your 4 year fix you can clear the mortgage
easier said than done !! GOOD LUCK

Suzkin

Hi Dimbo61,

Thanks for your ISA recommendations. However, if I wait for 4 years until the £600 penalty has gone, I would be paying £11.5k PLUS the monthly mortgage payments until then, being £7,680 = approx. £19k ?

Although it may be wiser on principle to wait the 4 years, in the long run, I would be paying more, than if I do it now (penalties included?) ?

I cannot afford £300 pm for the ISA: I don't earn enough.

btw: my interest rate is 5.55 fixed for 4 years :-( so I cannot change it unless I pay off in full.

Suzkin

I was also wondering if the start, middle or end of the month would be the best time to pay off?

dimbo61

Hi suzkin I am a little confused
you are making the max overpayment you can each month YES
you dont have the funds to pay off the mortgage and £600 penalty right now ?
If you have got the money then the sooner you walk into your lender and pay off the mortgage the sooner you stop paying interest. start,middle or end of month no matter !!
but if you have not saved the funds yet then ISA,s are paying a better rate
AT THE MOMENT so save any overpayments into ISA,s first and then overpay
on the mortgage second.
any overpayments on your mortgage should be made at the beginning of the
month or as soon as you get paid to save you as much interest as posible.
Saving into ISA,s also gives you an emergency fund in case you need money
for a rainy day so to speak GOOD LUCK

Suzkin

Hi there again,

Yes - I now get your point about the timing of paying off the mort. My overpayments take place at the same time I pay my monthly amount (i.e. at the start of the month), so I pay £160, instead of £133 each month.

thank you!

dimbo61

Good for you suzkin every single penny helps and the sooner you clear
what is to most people the biggest debt they will ever have the better.
£27 extra a month will soon add up and dont forget for one minute the
compound interest effect and this will quickly reduce your mortgage.
If you can try and build a small emergency fund in an ISA aswell

KAAT_LADY

:beer: Hopefully now as my mortgage is now paid up and I now own my own home not the mortgage company :j :j :j

jamesd

Suzkin, when using the ISA you are paying 5.55% on the mortgage but can currently make over 6% in the ISA. Any money you put in the ISA will show a profit by the difference in interest rates.

You would pay more in mortgage interest but make more than that extra mortgage interest from the savings, leaving you ahead and able to clear it a bit sooner.

Suzkin

So, are you are saying is that it might be 'best' right now for me to take out an ISA, as - if at 6% - I would be making a bigger saving?

jamesd

Suzkin, yes. And with at least one cash ISA paying 6.5% (Barclays, I think) the gain is quite nice to have. It's not a huge gain but every little bit helps.