Should I pay lump sum off

madwalker

Hi,

Am trying to decide what to do in terms of should I pay off a large part of my mortgage now .....realise I may have made an error in cashing in my ISAs to use in offset but can't change that now - and my main focus is to become mortgage free...(I have some endowments maturing in 10 years)

1. Have an offset mortgage of £65,000 @ 5.55% ending 30/11/09 - so won't pay it all of until then..ie leave balance

2. Have offset savings of £62,000

3. Will have £10,000 to pay off on 0% credit card 21/01/09 from offset savings

4. Should have £15,600 for 6 mnths emergency fund

5. Want to allow £3000 per year for holiday

6. Will need to replace car (approx £7,000) between 2009 - 2013 depending on how current car lasts

7. Expect to need to spend £4,000 on house by end of year

8. If I'm not paying/overpaying mortage I could save £500 a month

Therefore I think I should:

pay off £32,000, thus leaving enough to cover emergency fund, credit card, holiday and use any monthly savings to build up my ISA this year or save for car

what do people think - any advice much appreciated?

tanith

Do you have any penalties for overpaying your Mortgage?

madwalker

Tanith,
Only if I pay it all off before Nov 2009

magicdogsbrain

It depends if you think you will ever need the debt in my opinion.
If you will need to borrow (e.g. for a bigger house) in the future – I would see if they can extend your term at the same rate and keep your debt/offset going.
If you are never going to need debt again then go for it. Remember that its not likely that you will get 5.55% again and you can currently offset – so it costs nothing to hold the line of credit open at least until 2009 ( although I would suggest using the ISA allowance – especially if you are going to be debt free soon).

getmore4less

Too late now for you but others may like to know that some offsets(Barclays for one) allow cash ISA's to be offset, so you can still utilise the allowances for future tax free income.

(Hope you didn't have a Barclays/Woolwich offset).


Anyway, I think it is best to keep the offset pot as big as possible more flexable. can you extend the offset mortgage beyond 09? and what rate?

Start using the ISA allowances to begin building that up again
As this grows the emergency pot can be reduced.
Emergency 6 months expences, at the reduced rate because you are not working, not income.

Car thats a lot for a car.

What you could do is look at net wealth and decide if you want that to be going up or if you want to spend, the current plan will mean you will still have debt when the current deal runs out so will have to get a new one and need to plan for that.

Looking at the numbers £4k house, £3k hols and £500pm(£6k) spare means you are spending more this year so net wealth goes down.

Totals over the 5 years income £30k(5*£6k) spends £26k(£7k+£4k+5*£3k) so over the 5 years it goes up by £4k.