Saving v mortgage overpayments Calculator help

jamesd

Yes, you should use the cash ISA first.

The mortgage calculator is misleading because it's calculating a saving in interest over 22 years. What you should really do is use the mortgage calculator to work out how much earlier the mortgage will be cleared, then use the savings calculator for that many years with the mortgage interest rate. That'll give you the mortgage saving over the shorter term.

For money above the cash ISA limit, take a look at the BlackRock UK Absolute Alpha fund and consider doing a mixture of that, Invesco Perpetual Income and Artemis Global Growth. Values will go up and down but the likely return is more than paying money off the mortgage or a regular saver. The UK Absolute Alpha fund has been particularly good at not going down much. The other two have more growth potential in less dodgy markets.

StrawberryJam_2

interesting, in one evening my initial thought of repay mortgage has been turned on its head.

I have had a quick search on the forums: 'BlackRock UK Absolute Alpha' = so many posts jamesd thanks for the information on the funds, might start to look into this. First need to become comfortable in the new financial year before investing further money. I will be back

hyposmurf

Lokolo wrote: »

However, if you are planning on putting £3600 in an ISA, every year for 10 years, as a longterm plan, then you may as well do that, because at the end of the 10 years the interest gained on the ISA will pay for the mortgage.

I've decided to keep my money in a cash ISA towards my mortgage,this way should also leave more freedom if I decide later I need the money for something else,not so easy to get the money back once youve made over payments.

Lokolo

hyposmurf wrote: »

I've decided to keep my money in a cash ISA towards my mortgage,this way should also leave more freedom if I decide later I need the money for something else,not so easy to get the money back once youve made over payments.

Good idea. I think you will find this year a lot easier to make over payments though, so be prepared to cut back as much as possible on things so you can mass overpay, and get rid of dreaded mortgage

zx2011

Is it an interest only mortgage or a repayment one?

If it's a repayment one then you will reduce the balance by paying off some capital and pay less interest for the remaining time of the mortgage.

tomstickland

All you need to do is compare the interest rates.

With each unit of money you can either receive interest on it in a savings account, or you can put it into the mortgage where it will cancel out some borrowing interest there. Hence the profit or loss rate for each unit of money is simply the savings rate (after tax) minus the mortgage rate.

eg: I have a 4.2% mortgage rate and make 5% on my savings, so each unit of money in the savings account makes me 0.8% pa (ie: pays 5% in the savings account, but it's costing me 4.2% on the mortgage).

jamesd

StrawberrryJam, repaying the mortgage is good but there are ways other than monthly overpayments. Many prefer that but some don't. You might also find the discussion of the interest only option of interest.

I'm already repaying a mortgage I don't have at the moment - via pension contributions as part of a pension mortgage, but currently without the mortgage half. You get tax relief on the pension contributions and repay the loan out of the tax free sum, leaving you a larger pension fund. But you do need to make pension contributions of 2-2.5 times the difference between interest only and repayment levels for it to work. The two main catches are that there's investment risk and you can't repay until you can take the pension money, which means no earlier than age 55 for most of us, using a personal pension.

StrawberryJam_2

Very interesting reading Jamesd on the interest only mortgage + investment. This would appeal and I never considered it. I have just remortgaged to a tracker following a 3 year fixed deal.

Oh how I wished I fully appreciated the risk and opportunities with the interest only mortgage. Too many people including me are not fully aware of how to work this game. I just had it in mind to repay my mortgage with overpayment as soon as possible, so opted tracker rate.

At no time did anyone ever say to me 'Stop and consider interest repayment only' I had visited a independant financial advisor and also mortgage advisor. May reconsider my options later/