Pay off part of mortgage or not?

papoosue

Hi there. I need some advice please on whether to pay off part of our mortgage or not.

Our situation is that we have absolutely no extra money so overpaying is out of the question. However my mum would like to give us an amount towards the mortgage (£20,000 I think) because she thinks it would help us financially (we are really struggling). Our mortage is about £49,000 (don't know the rate etc but can find out) and it is part interest and part repayment. It works out around £280 or so a month (varies according to interest rate) and we also pay £105 to an endowment per month. Now, I know nothing about mortgages etc so you will have to bear with me. What I wonder is; is paying £20,000 to the mortgage the thing to do or is there some other option that would be more sensible?

Hope someone can understand my ramblings and give me some advice.

Thanks, Papoosue.

Ma77hew

I think you should give some more information ie.:

Are you and OH both tax payers? If you are paying off the mortgage may be the best option if not you may be able to get a bond that provides a monthly income thats greater than the mortgage saving.

Is the interest you pay on your mortgage higher or lower than you can get from a savings account of bond? This would also be dependent on whether or not you pay tax.

Do you have any other debts? These will most likely charge a higher interest and would save more money by paying them off first.

What you really need to do is a) pay of other debts first, b) compare the savings you would make by paying off the mortgage to the income you could earn from opening a risk free bond providing a monthly income. c) you should also consider what would happen if you interest rate goes up as it sounds like you have a variable rate, most monthly paying accounts would be fixed.

Personnally I would pay of towards the most expensive part off the mortgage, this will help you get a cheaper deal when you remortgage, save you money each month and be what your mum intended the money for.

papoosue

Hi Ma77hew. Thanks for your reply, it is much appreciated.

I am not a tax payer at present as I am a housewife/OU student. My oh works and does pay tax.

We don't have any other debts thankfully.

As for a risk free bond; well, I'd have to investigate that as I know nothing about them.

Yes, I'm sure the mortgage is a variable rate.

From what you say, I think I need to find out which part of the mortgage is most expensive interest-wise (the interest or repayment part?) too. Is that correct?

ailuro2

Use some of the money as leverage to sort yourself out a better mortgage deal. Keep some as an emergency buffer since your sailing quite close to the wind moneywise. Take your lovely Mum out for dinner using some of the money.;) What a sweetie! Can I have a Mum like that,please?:p

Find some extra money from somewhere - changing utility providers, doing some shopping at Lidl, packed lunches instead of bought etc. and you might find some breathing space? And remember to put any savings in a decent rate savings account in your name, since you are the non taxpayer.

£105 a month for an endowment sounds pretty awful. Have you checked out the surrender/sell on value of it and compared the cost to paying all the mortgage on repayment? Is it worth holding on to, or not? Do some homework, imho.

wymondham

ailuro2 wrote: »

£105 a month for an endowment sounds pretty awful. Have you checked out the surrender/sell on value of it and compared the cost to paying all the mortgage on repayment? Is it worth holding on to, or not? Do some homework, imho.

My endowment went up to £180 p/m (for £36k!!) before I realised it was a turkey. This was to keep the guarentee of a minimum payout - definately not worth it in my case. I think you need to investigate the endowment situation as ailuro2 says as this could give you another lump payout and reduce your monthly outgoings, which you desperately need. Have you seen if you were mis-sold the endowment -worth a try as you might get your third lump payment!

The sticking point with your idea to put in £20k to your mortgage is they probably won't allow it, depending on your type of mortgage - find out what is the max you can pay off in a lump sum - probably 10% a year?

Think of this as an exciting opportunity, as although we don't know much about your situation, you could have real potential to seriously reduce your mortgage here....

Good Luck!