Mortgage and savings

bluecounty

Hi all,

I'm brand new to the forum so am hoping for some help. I've only had my mortgage for around 2 months but I want to get rid of this £104,000 as quickly as possible.

I'm with Mortgage Express and pay a rate of 6.99% fixed rate for 2 years. I pay £150 out of my wages to a sharesave scheme with the bank I work for and have just set-up an ISA which is an index tracker linked to the FTSE all share market. I invest £150 in this per month also.

I pay £677 for my mortgage and I do have the option to overpay upto 100% of my monthy mortgage payment per month.

In my mind, what I was going to do was to move to a better mortgage rate in 2 years and find a fixed rate mortgage for 3 years. At the end of the 3 years fixed rate I would then pay a lump sum of the mortgage and reduce the term and up the mortgage payments to a max amount I can.

I hope to clear the mortgage in 10 years.

I earn around 36k before tax. Can anyone offer 'another way of doing things?'
which may reduce the time in which i'm paying the mortgage off.

Many thanks

getmore4less

The bottom line, is that this repayment mortgage for £104,000.00, over 10 years, will cost you £1,206.99 a month

That was from a mortgage calculator so currently you are well short of paying this off in 10years unless your investemts do very well.

Interest only would be £606 so £677 is an interesting payment to be making and does not seem normal. But even with the £300 invested elsewhere you are over £200pm short for a 10y plan.

Works shares scheme is probably a no brainer but make sure.

ISA has a risk it won't do well and if the plan is to cash it in you loose the ISA benifits so might be better of just overpaying now.

If you pay £677 for two years then you will have £102,171.69 left to pay over 8 years so the new repayment mortgage @6.99 is

The bottom line, is that this repayment mortgage for £102,171.69, over 8 years, will cost you £1,392.47 a month

Even if you got a rate of say 5.5% the monthly payments would be £1,317.95.

The longer you underpay a repayment schedule the bigger the payments required will get to hit a target

I think you need to rework your numbers 10 years is very ambitious without some serious additional payments.

getmore4less

On another point 6.99% seems a very rate to be paying why this deal in the first place?

bluecounty

getmore4less wrote: »

On another point 6.99% seems a very rate to be paying why this deal in the first place?

Actually it is 6.89% (sorry) on a 30 year term. It was the best I could get at the time due to 3 defaults (all settled now) on my credit file. These will have dropped off by 2010 when I will hopefully be able to get a much better deal on a shorter term.

Do you think it would be best to carry on with the company sharesave and keep investing in the ISA for the next 5 years or so then cash all my investments and pay a lump sum off?

rozzy_2

somebody please correct me if im wrong, but I go on the basis that if the AER on your savings is higher than your mortgage APR then put the money into your savings.

However if the Mortgage APR is higher than your Savings AER then overpay on the mortgage.

getmore4less

rozzy wrote: »

somebody please correct me if im wrong, but I go on the basis that if the AER on your savings is higher than your mortgage APR then put the money into your savings.

However if the Mortgage APR is higher than your Savings AER then overpay on the mortgage.

The current investment choices are share based so different considerations.

getmore4less

bluecounty wrote: »

Actually it is 6.89% (sorry) on a 30 year term. It was the best I could get at the time due to 3 defaults (all settled now) on my credit file. These will have dropped off by 2010 when I will hopefully be able to get a much better deal on a shorter term.

Do you think it would be best to carry on with the company sharesave and keep investing in the ISA for the next 5 years or so then cash all my investments and pay a lump sum off?

Ok even at 6.89%, you are still short to meet a repayment schedule over 10 years adding the £300 to your mortgage payment gives a term of <12y so not too bad and with some pay rises should be posssible to bring this in.

Sharesave: these are usually good, all the upsides with only the opportunity costs(loss of interest) on the down side, the share investment risks are zero because you cash in if you are in profit.

So most likely worth paying the maximum you can into his but this will depend on the details of the scheme.

As for the ISA, do you really think this will do better than just overpaying the loan? Are you prepared to take the risk it won't and be lumbered with bigger payments in the future.

As for longer term most people look to paying off debt and producing retirement income have you got thsi covered through the banks pension scheme, is it final salary or money purchase?

If money purchase then you have equity based investments there and by doing the ISA you have even more.

The other thing to consider is your LTV if prices drop and you go into -ve equity you will have issue remortgaging so could be stuck with the SVR which is???

Personaly I would stick with the sharesave and drop the equity ISA overpay o rsave in cash ISA if you can find one paying more than 6.89 or look at the regular savings acounts that pay high interest but take off the 20% tax.

I think you need to be sure of having the money to at remortgage time should you need it to bring down the debt, equities are too risky for this.