We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

To pay or not to pay...

Options
Hi,

Just wanted to know what the best course of action is please:

I'm in the fortunate position that I now have enough cash to redeem my mortgage once and for all, approx. £51,000

I have no other debts whatsoever

However, there is a penalty charge for redeeming 2 years into a 10 year fix [approx. £2000 all together] but from using the various calculations and my own, I will save about £11,000 in interest charges over the remaining term

So, to get to the crux, do you think I should pay off or just carry on investing/saving the lump sum ?

Appreciate your help

Comments

  • lisyloo
    lisyloo Posts: 30,077 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Where is your £51K right now?
    What rate is it earning?
    Whose name is it in?
    What tax rate do you pay?
    Do you have a spouse?
    What tax rate do they pay?
    Have either of you used your ISA allowances this year?
    What is your mortgage rate?

    Sorry for all the questions but they are all relevant.
    but from using the various calculations and my own, I will save about £11,000 in interest charges over the remaining term

    This may be true, however you will also make a return by intevesting the £51K elsewhere over the next 8 years.
    The question is - which will generate the best return?

    I can't answer that without more information as above.
  • In reply:
    Monies with ING
    4.75%
    In spouse's name
    Non tax payer - interest gross
    ISA allowances used
    Mortgage rate 5% APR

    Thanks
  • lisyloo
    lisyloo Posts: 30,077 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    OK I have done the following calculations.

    I am assuming you have the £2K available to pay the penalty so I have compared.

    a) £53K in ING at 4.75% for 8 years
    b) £51K paid off the mortgage @ 5% plus £2K spent on penalty.

    The results with compound interest are

    a) £76,825
    b) £75,350

    which means that leaving the money in ING currently gives the best return.
    You should review this if either you can get a better savings rate, the savings rate changes (rate drops?) or your penalty reduces (sometimes they reduce over the lifetime of the mortgage).

    I have used 5% as the rate on the mortgage and this may not be the actual rate as APR includes fees etc.

    If you want to reproduce calculations then it's
    a) 53000 then multiply by 1.0475 8 times
    b) 51000 then multiply by 1.05 8 times
  • Thank you for this - appreciate your time in preparing this

    It clears my cloudy mind now!
  • robnye
    robnye Posts: 5,411 Forumite
    Part of the Furniture Combo Breaker
    couldnt you overpay your mortgage every month, that way you are still earning interest with ING

    of course if your mortgage is annual interest, dont overpay until december, just before they recaculate for the new year
    smile --- it makes people wonder what you are up to.... ;) :cool:
  • Hobo_2
    Hobo_2 Posts: 286 Forumite
    Hi, so really you can 100% offset in effect, but can do better on the saving (spouse gross) rates with Dripping into Regular Savers where possible, but time & effort reqired to chase the rates!
  • Thank you for your advice
  • dunstonh
    dunstonh Posts: 119,646 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Check your mortgage terms. There may be an allowance to overpay a limited amount extra each year without penalty.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
This discussion has been closed.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350.9K Banking & Borrowing
  • 253.1K Reduce Debt & Boost Income
  • 453.5K Spending & Discounts
  • 243.9K Work, Benefits & Business
  • 598.8K Mortgages, Homes & Bills
  • 176.9K Life & Family
  • 257.2K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.