mortgage advice required please!

Ebo

I currently have £113k mortgage (£41 interest only + £72k repayment). I am due to made redundant soon and will receive around £35k as my exit package. I also have approx £34k in ISA's, endowment and Premium Bonds, £18k in cash and £20k in shares giving me an approx total of £107k.

Can anyone advise as to the best way to use this money?? e.g. should I use it to pay off as much of my mortgage as possible? Or pay off the £41k interest only part? Or something else?? Any advice would be appreciated.

thanks

minimike2

Will you be going straight into a new job?

Ebo

Pretty much ... wont be out of work for more than a month or two at worst.

minimike2

I would pay off as much as you can comfortably afford to - but keep some money aside in case you need funds in the event of an emergency / unexpected expense arrising.

You should check how much your lender will allow you to pay off without penalty.

sarkin

how about you get an offset mortgage and pay the ballance down with the option of redrawing on your funds as you need.

Ebo

Thanks minimike. I can make 10% overpayments per year on the two year deal that I currently have. I am approx 9 months into this deal and so I had thought the best option would be to pay off the interest only part (of £41k) in full and then pay 10% of the repayment part of the first year of the deal and then a further 10% when I enter the second year.

This should bring down my monthly payments a good bit and also leave me with my ISA's etc. more or less intact.

Thank you too sarkin as I hadn't considered the offset mortgage option.

One of my concerns was whether this is worthwhile or not since I keep hearing people telling me that 'you shouldn't pay off your mortgage in full' ?? Never really managed to get a reasonable answer as to why you shouldn't pay it off in full though.

mrsbudget

wow!!! can i ask what u do for a living?? just kidding:-)

Ebo

male stripper .... just kidding!!

chappers

Are both parts of your mortgage on the same rate and deal.i.e tied into the two year deal, can you overpay the interest only by more than 10% without penalty, how is the interest calculated on your mortgae if say it is annually then you prbably don't want to do anything until just before the interest calculation date.
If you think you can walk into a job of similar salary pretty quickly then why not stash your redundancy away until the end of your mortgage deal then switch to something where you can overpay without penalty.
You have quite few variables, costs and income interest rates to take into account. You really need to sit down with a financial adviser and work out which is the most cost effective way for you to procede.

Ebo

Both parts are on the same variable rate (which is via my company scheme and is pretty good). Interest is calculated monthly.

I wont get the same salary as I'm on just now and will prob take a bit of a drop (maybe as much as 50%). I believe that if I clear off the interest only part then the lender automatically takes the first 10% off as an overpayment and I will pay an early repayment fee on the remainder.

But I think you might be right about the FA ... I'm getting more confused by the options available to me by the minute!!

minimike2

You need to work out if its worth paying the penalty at this point. See how much interest you would save vs the ERC you will pay by paying it off.