Mortgage pay off or overpay ?

Dave55

Hi all

Finally jumped to this forum after being in the mortgage/endowment one for advice over the last month, and good advice given there :T

So on to the last hurdle, here's the situation.

Mortgage interest only settelment fig £26480 at varible rate with 40 payments left.

Penelty for paying of early £1300 with a £250 redemtion fee (old deal i took the cherry of 2500 for a mortgage switch 7 years ago):mad:
Allowed to overpay 499 a month on top of the regular payments for 11 months and pay 10% off remaining balance and so on till the end no penalty.

Have £13800 and 9800 in our isa's fully paid up this year. £6500 in a flexi endowment, £12000 in a cashed in endowment just put in a 6.5 high interest account easy access.

What do i do ? overpay out of the savings ? pay the lot off and start banking my old mortgage and endowment payments. Just not sure of the best option in the run in.

Dave

JonnyBravo

Dave55 wrote: »

What do i do ? overpay out of the savings ? pay the lot off and start banking my old mortgage and endowment payments. Just not sure of the best option in the run in.

Difficult to say without knowing all the applicable interest rates..... but here's an educated guess.

£1300 ERC is quite a large percentage of the amount you owe overall.



You need to work out which is larger

1) The amount of interest you'll get on your smaller pot on money if you pay off the mortgage - £1300 (the ERC)

or

2) The amount of interest you'll pay on your mortgage if you overpay the maximum without incurring charges - the amount of interest you'll get on your larger pot of savings in that period


My bet is no.2 will be the way to go.... simply because £1300 is such a large percentage of the overall amount you owe.

(The £250 closure charge is largely irrelevant as youll pay that no matter what when you close the mortgage.... I say "largely irrelevant" as clearly inflation means it's better top pay it in three years than now etc)



More thinking..... also once you withdraw your money from your ISA you can't get it back in etc
Can you avoid the £250 by keeping a nominal sum in the mortgage? (Plus theyll keep your deeds for you.... not too important nowadays but what the heck)