Mortgage Dilema

Kaz2904

Very good point about the interest from an ISA being included in the tax free wrapper. I don't think that had ever occurred to me really!
It was a good point about the statement too. If you are not really desperate to clear the mortgage as much as you just want money there then it may be more financially wise to fully use the ISA allowance each year and then overpay any extra to the mortgage. Thereby getting the best of both worlds!

paul25

Thanks ever so much for all of your post's.

I am extremly keen to become mortgage free (hope to do it before I reach 40, which gives me 15yrs) but also weary about getting rid of all my savings, so the Isa wrapper interests me. As noted on posts this will mean i keep the previous years Isa's allowances that have taken time to build up.

I think the £3,000 premium bonds will have to be cashed and used to pay off a small chunk of the mortgage.

I will have to sum up my options early next year with regards to which type of mortage to go for.

Thanks again.
Paul

JimmyTheWig

Dithering_Dad wrote: »

2) While the OPs stated mortgage rate is 5.24 fixed, we don't know how much he paid in mortgage arrangement fees for this mortgage and whether he had to pay a redemption fee with his previous mortgage provider. He could have paid £1500 in fees for a 3 years fixed mortgage and £500 redemption fee - therefore his mortgage APR (the actual cost of having a mortgage) could be much higher than the rate he can get with an ISA (or so close as not to be worth the worry).

I don't totally agree. While these fees do make the cost of having a mortgage higher (and are vitally important when comparing one mortgage with another) they don't really* affect what we are discussing here. If he had reduced a his mortgage by a chunk he would still have to have paid £1500 in fees and £500 redemption fee. All reducing the mortgage would do is reduce the interest he is charged, for which you need to look at the interest rate.

3) Except for my pal

4) Agreed!

Your pal is covered by part 4. From a purely financial point of view, even your pal would be better off with that money elsewhere, just that his emotional attachment to them makes them better for him.

JimmyTheWig

JimmyTheWig wrote: »

they don't really* affect what we are discussing here.

* For those interested in minutae, they can affect things. For example with a large amount owing on your mortgage you may choose a product with a high fee and a low interest rate. For a small amount owing you may choose a product with a lower fee and higher interest rate.
And so by reducing his mortgage he may reduce his fees, but in the main I stand by what I said.

Dithering_Dad

JimmyTheWig wrote: »

I don't totally agree. While these fees do make the cost of having a mortgage higher (and are vitally important when comparing one mortgage with another) they don't really* affect what we are discussing here. If he had reduced a his mortgage by a chunk he would still have to have paid £1500 in fees and £500 redemption fee. All reducing the mortgage would do is reduce the interest he is charged, for which you need to look at the interest rate..

Actually, mortgage providers are moving towards having percentage based arrangement fees, so having a lower mortgage would result in a lower fee.

It seems much fairer too - if I had a 40k mortgage and my friend had a 200k mortgage, it seems a tad unfair that I had to pay the same fee - especially given that my 200k mortgage friend will make greater savings than me over the term of the discounted mortgage.

here's a link:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/04/cmhomeloan104.xml

Here's a quote from the link:

"More worrying though is the trend for lenders to introduce percentage fees. Rather than simply levy a flat rate, some lenders charge between 0.2 and 3.5 per cent of the loan as a fee. The highest percentage, Northern Rock's 3.5 per cent, would add a massive £4,550 to an average loan of £130,000.
According to Moneyfacts, 9 per cent of all "prime" mortgage deals now involve a percentage fee. "

Things are changing in the mortgage market, and not in favour of the consumer. The days where you could happily run a large mortgage debt and make more money in investments and savings are coming to an end. I'm just glad I had the foresight to start reducing my mortgage. I reckon I will need to pay one more arrangement fee and that's it, my mortgage will be gone .


p.s. Redemption fees have always been percentage based, so clearly the lower your mortgage, the lower the redemption fee.