Cant do the maths!!

medicman

Hi

Just wondering if someone could help me do the maths on my mortgage and overpayments etc.

Last july we took out a £420,000 mortgage with nationwide (5 year fixed rate at 5.48%) on a repayment basis.

The monthly repayments are £2574.15. Since December 2007 I have also been repaying an extra £500 per month into the mortgage. After this months repayment of £3074.15 the outstanding balance is £407,386 as of today.

Recently my wife has inherited a lump sum of £190,000. Nationwide have said that if we want to repay this sum into the mortgage there will be a 3% penalty.

Can anybody help me with the following questions:

1. If I put some savings in as well and repay £206,000 (so £200,000 would credited to the mortgage) and then continue to overpay by £500 per month i.e. make payments of £3074.15 per month - how much will be left outstanding on the mortgage in July 2012.

2. Am I better off taking the 3% penalty and putting the money into the mortgage or is it better to spread the money out over high interest accounts and then repay it after the 3% penalty ends in July 2012. The downside I see to this is that we are both higher rate tax payers (although this may change for my wife in a year or 2 if we have kids). Is about 6% gross a year a reasonable figure to do this comparison on?

Many thanks for any help in advance.

silvercar

1. very roughly about 120k.

If you got 6% interest elsewhere it would be worth 3.6% interest after higher rate tax. Your effective rate of interest is your mortgage rate of 5.48% but reduced by the 3% ERC in the first year, so your gain in the first year is only 2.48% making it not worthwhile, but in subsequent years you get the full benefit of 5.48%. As there is 4 years to gain, it probably is worth paying the ERC and reducing the mortgage, though if you have the time and patience using your ISA allowances each year may be slightly better.