Mortgage dilema - would love your opinions and help

natman

Hi all, Wonder if a few of you could look at this and come up with some suggestions as I am really struggling coming to a decision -

I owe £27,500 on my mortgage. I have a base rate tracker at 0.5% above base rate through Britannia Building Society. I paid off some mortgage some time ago and reduced the term and I now have around 6 1/2 years left to pay at £415 a month. I can over pay and make big payments up to 100% of my monthly bill.

Heres the quandry -
My wife and I have savings -
ISA - £9, 800 AT 6.5%
HI-SAVE ACCOUNT - £4,000 AT 6.15%
Term deposit account - £7,000 at 7%
Instant access savings £3,000 at 5%
Basically we have savings of around £24,000 and even though i feel that we have savings invested quite well, into ISA's etc. I really want to perhaps focus on the mortgage, but a bit confused about what the best way forward is.
Have you guys any thoughts?? or things i can look at further.
Thanks

Catalystpod

I heard Martin say a few weeks ago that if you could pay off your debts then do it rather that have savings. This is always difficult but maybe you could reduce your mortgage but leave your ISA in tact and some rainy day money.
All the best.

StuartGMC

natman wrote: »

I owe £27,500 on my mortgage.
Heres the quandry -
My wife and I have savings -
ISA - £9, 800 AT 6.5%
HI-SAVE ACCOUNT - £4,000 AT 6.15%
Term deposit account - £7,000 at 7%
Instant access savings £3,000 at 5%

Natman, I'll admit that I'm an offset fan (see my thread about how we maximise benefit) and I'm happy to send you the spreadsheet I've shared with others, just PM me.

I anticipate in addition to the above your current account will fluctuate a further £1500-2000 per month. If all this spend (exc DD and SO) was on your credit card, you could be offsetting this amount too by paying the credit card in full 5 days before due (I just schedule mine online with the bank as soon as bill is generated online, then forget about it).

You need to consider the balance of interest saved on the mortgage against that earned on the savings, and I assume that all the above apart from the ISA are subject to income tax on the interest earned?

Assuming this all adds up ok, then you need to choose the product you want and for offsetting the main difference (I think) is whether the provider will offset against cash ISAs or not. Remember you will not get interest on them once offsetting.

We're with NatWest but they don't offset against ISAs; however, you have £15k outside the ISA and let's assume an average current account balance of £1500, giving £16500 offset against £27500 (i.e. 60%). Now, the way I like to look at this is that the interest you are paying on the mortgage is reduced, in this case you'll only pay interest on 40% of the sum remaining or 0.40xinterest rate (ie 2.58% on the capital owed if you had NatWest Offset Flexible rate of 6.45% , which is "somewhat" better than the BBR+0.5% :j).

So, it's your decision, but remember once 100% offset, monies earning interest will then be subject to tax on it. Run your numbers and you may decide that using your ready access savings to offset and keeping the ISAs growing may be the best balance.

In essence don't get caught looking at the interest rates alone when comparing offset to other schemes, and compare overpayment limits and ERC situation.
Do however, check the MSE article on savings vs. offset http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings#paying

HTH and let us know how you go forward; now you are here, you may as well join in and regularly update us on the progress.

natman

Thanks Guys......

Stuart i have considered an offsett account with various providers -one account, Britannia etc.
I Know that I may become obssed by watching every penny ( which is worth doing) I also like seein my savings grow i suppose, which is a bit odd as long term they would grow more with only paying 2.5% on my outstanding loan.

We can save around £600 a month which generally goes into the HI SAVE account with a small sum going into instant access savings.
I do not have any other loans - no credit cards, no persoanl loans, just the mortgage. which is a good thing.

I know offsetting seems a good idea but i suppose my main reasons for not doing it is -
I may move in next year or so and suspect that my £24,000 savings and £27,500 outstanding mortgage will be very different and offsetting may then be a burden rather than a help......................i dunno.
Thats why i remain a little stuck - ummmmmmmmmmm

StuartGMC

Natman
Good point to note in terms of your plans. I think my offset could be taken if we moved, so look into portability.

Accepting some additional costs with a move, your theoretical £16500 could still be a 10% offset initially on a £165,000 mortgage (not sure how much you expect to need to move up to next house) so you would be paying 90% of the interest rate, so using the 6.45% as above, it would be 5.81% (which I think is quite good presently?). Obviously things would improve as you overpay and increase savings.

As you say, some work needed here for your review.
Hope the spreadsheet provides some assistance in this respect.

setmefree2

natman wrote: »

I have a base rate tracker at 0.5% above base rate through Britannia Building Society.

This is a really good tracker deal. You could not match this at the moment. Personally, I would not give this up but maybe you should check on the mortgage board.

You should keep the ISA. This is the MSE view. For the other savings it depends whether you are a basic rate tax payer or not. If you are a basic rate tax payer you need to beat 6.9% otherwise it's 9.2%. Have you checked the savings board to see what savings a/cs are around? The MSE rule of thumb is that you need 3 to 6 months salary as a rainy day fund before you pay of your mortgage.

Hope this helps

SMF2

getmore4less

natman wrote: »

I know offsetting seems a good idea but i suppose my main reasons for not doing it is -
I may move in next year or so and suspect that my £24,000 savings and £27,500 outstanding mortgage will be very different and offsetting may then be a burden rather than a help......................i dunno.
Thats why i remain a little stuck - ummmmmmmmmmm

What sort of move do you have planned?
how much is the cuurent house worth and how much is a future house purchase likely to be.

Securing a portable mortgage for any future amount needed and offsetting so it costs you nothing if you don't move could be a good move if loans are likely to get more dificult to obtain in he future,

Can't get the loan saves you even trying to move.

natman

Nice one guys -
Thats a great question - what sort of move do I have planned. Ideally moving up the ladder, whatever that means these days
My house is is 'worth' £140K and thats a realistic price I think - it was valued 12 months ago at £160k
I was looking at moving to a house lets say 50k more than my house is worth ( was lookin at 200-200k mark 12 months ago), giving me a mortgage instead of 27k, it would be say 80k. I know that is not too high these days, which is good.

I also think my 0.5% above base rate tracker is decent rate and I am reluctant to say bye to this.

I was also thing of perhaps paying say - £ 17, 000 off the mortgage and having 6-7k left in savings. leaving me owing 10k on the mortgage. That way I will keep my payments the same and potentially pay off mortgage earlier if we dont move, and have savings. Or if we do move I wont have to borrow as much for an new deal..............

I am really stuck - Trying to make the best of my hard earned savings and not make a sily decision like buying a house at present and potentially losing big money if the price drops......

Cheers guys and gals

StuartGMC

natman wrote: »

I also think my 0.5% above base rate tracker is decent rate and I am reluctant to say bye to this.

Is this portable?

I was also thing of perhaps paying say - £ 17, 000 off the mortgage and having 6-7k left in savings. leaving me owing 10k on the mortgage. That way I will keep my payments the same and potentially pay off mortgage earlier if we dont move, and have savings. Or if we do move I wont have to borrow as much for an new deal..............

This requires you to cash in the ISAs? I would consider keeping them if you can.

I am really stuck - Trying to make the best of my hard earned savings and not make a sily decision like buying a house at present and potentially losing big money if the price drops......

We bought in October 1994. If you saw Andrew Marr's History of Modern Britain this evening it showed you just what a mess we were all in 1991-1993... brought back chills just watching it :eek:

I had been made redundant in 1992 just days after Black Wednesday. The company went bust, so no redundancy pay; got a job luckily but had to drive 120miles round trip a day at my own expense.... yet, two years later we were at last able to buy our first home, which we are still in as it's a 4 bed detached. Prior to this we couldn't afford a two bed terrace as two graduates....

So yes, prices could fall and make things more affordable. In your case it should reduce the differential to move up, even if the actual value of your present home drops. Good luck

natman

I also think my 0.5% above base rate tracker is decent rate and I am reluctant to say bye to this.
Is this portable? - YES THIS IS PORTABLE

Regarding the ISA - I would like to keep monies invested In an Isa, but its the balance of - trying to pay mortgage off, having some savings, not letting all this financial baloney spoil 'living' and making sure no rash decisions are made regarding the future.

I know the markets out there are volitile at present -
But if i owe 27k
and i have 24 k in savings, yeah having all of that off set means i only owe 3,000 - whooooooo - could have my mortgage paid off by the end of the year - what an incentive.
But if i did move i would have to take out a new mortgage deal which would not be as good as my currrent deal -

perhaps I pay off a lump sum of £24,000 & have £3000 mortgage left and extend my term to 25 years paying around £20.00 a month. haa haa.
I could save around £1000 a month then and in two years would have my £24,000 back.................

StuartGMC

If you offset you still owe the total, just pay interest on the difference; so you benefit from the money but keep it available not locked up in the mortgage. You don't have to pay off immediately, but, in your case you would be changing provider of course, so do the simple calcs.

If you are looking at £80k for the mortgage, you can offset at £16k (20%) and still keep your ISAs growing. Is the present mortgage at BBR+0.5% better than, say 0.8 x 6.45% (i.e. 5.16%), I think you would be at 5.5% presently which would be more interest to pay intially?

Remember as you pay down capital that offset becomes a bigger % even if you don't increase it further because you choose to pay into ISAs and of course Offsets can be had without an ERC, you can be flexible with payments (over or under) and if needed draw on the facility. As % offset increases the equivalent interest rate gets even better i.e. less than BBR.

I agree on the "balance" - see my own thread on why we aren't putting everything in against the mortgage and are also putting into ISAs http://forums.moneysavingexpert.com/showthread.html?t=944413

I'll stop here as I don't think I can offer anything further, but do remember your requirement for life cover on the mortgage and add to your "costs" when keeping the mortgage going.
Cheers