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  • FIRST POST
    • NottinghamLad
    • By NottinghamLad 14th Mar 18, 9:34 AM
    • 5Posts
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    NottinghamLad
    The £25k question! Need advice
    • #1
    • 14th Mar 18, 9:34 AM
    The £25k question! Need advice 14th Mar 18 at 9:34 AM
    Hi - I have a mortgage which is coming to the end of its fixed period on the 2nd April 2018. The fixed rate was 2.99% but will revert to SVR of 4.74%.

    We have aggressively been paying our mortgage off and have a balance of £25k left to pay (after 6 years).

    We also have £25k savings so the plan was to be mortgage free by a the time the fixed fee expired on 2nd April (meaning no early repayment charge).

    However last week i put a deposit on a car that will cost....£25k!

    So I think my options are:

    1. Pay off the mortgage using the £25k saving on 2nd April so we will be mortgage free. Take a loan of 25k for the car @ 3% (from Sainsburyís bank etc) and pay that off over a reasonable time (4 years). The disadvantage is that interest is calculated up front so we will be paying £2k interest over 4 years with no incentive to pay it off early. The advantage is I have been paying a mortgage of £1.5k and that will disappear and be replaced by a car loan payment of £450. The extra money each month can be used to cover car related costs but also take family on holiday etc.

    2. Pay car cash with savings. Continue mortgage agreement - it currently is set to finish in nov 2019. Continue to make £1.5k payments and try to overpay as much as possible to pay it off in 1 year. The advantage would be that the house and car could be paid off in 12-18 months and the interest would be less then the £2k with a loan. The disadvantage is another year of austerity ( we havenít had a holiday abroad for 6 years).

    Can anyone offer any advice or think of another way of dealing with this situation?

    Thanks
Page 1
    • SharkBite
    • By SharkBite 14th Mar 18, 10:13 AM
    • 40 Posts
    • 26 Thanks
    SharkBite
    • #2
    • 14th Mar 18, 10:13 AM
    • #2
    • 14th Mar 18, 10:13 AM
    I'm sure most would suggest the most sensible financial option.

    Personally and IMO I would pay off the mortgage and enjoy the extra cash, you've worked hard for it.

    Although there is no incentive to pay the car off early it doesn't mean you can't/shouldn't and free up the monthly payments going to that too.
    • zx81
    • By zx81 14th Mar 18, 10:15 AM
    • 16,800 Posts
    • 17,811 Thanks
    zx81
    • #3
    • 14th Mar 18, 10:15 AM
    • #3
    • 14th Mar 18, 10:15 AM
    The disadvantage is that interest is calculated up front so we will be paying £2k interest over 4 years with no incentive to pay it off early.
    Originally posted by NottinghamLad
    If you pay it off early, you will save on the interest. Front loaded interest hasn't been allowed for years.
    • SharkBite
    • By SharkBite 14th Mar 18, 10:17 AM
    • 40 Posts
    • 26 Thanks
    SharkBite
    • #4
    • 14th Mar 18, 10:17 AM
    • #4
    • 14th Mar 18, 10:17 AM
    If you pay it off early, you will save on the interest. Front loaded interest hasn't been allowed for years.
    Originally posted by zx81
    True...

    I recently paid of a bike loan early and the interest was calculated down reducing the amount owed.
    • NottinghamLad
    • By NottinghamLad 14th Mar 18, 11:17 AM
    • 5 Posts
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    NottinghamLad
    • #5
    • 14th Mar 18, 11:17 AM
    • #5
    • 14th Mar 18, 11:17 AM
    Oh and took the following to mean it was calculated up front and then included hence why payments are fixed through the life of the loan

    ĎThe interest rate is fixed and guaranteed for the life of the loan. Interest at the annual interest rate is calculated each calendar day and is added to the loan monthly.í
    • SharkBite
    • By SharkBite 14th Mar 18, 11:39 AM
    • 40 Posts
    • 26 Thanks
    SharkBite
    • #6
    • 14th Mar 18, 11:39 AM
    • #6
    • 14th Mar 18, 11:39 AM
    Oh and took the following to mean it was calculated up front and then included hence why payments are fixed through the life of the loan

    ĎThe interest rate is fixed and guaranteed for the life of the loan. Interest at the annual interest rate is calculated each calendar day and is added to the loan monthly.í
    Originally posted by NottinghamLad
    Does this aid your decision?
    • getmore4less
    • By getmore4less 14th Mar 18, 12:14 PM
    • 32,035 Posts
    • 19,222 Thanks
    getmore4less
    • #7
    • 14th Mar 18, 12:14 PM
    • #7
    • 14th Mar 18, 12:14 PM
    Why not take the mortgage over the full existing term on a 2y fix should be down under 1.5% with a decent lender.

    max interest will be £750.
    (peanuts when your car will lose £5k+ as you drive it out of the showroom)

    Rebuild your savings take a holiday and pay off the mortgage in 2 years.
    • NottinghamLad
    • By NottinghamLad 14th Mar 18, 2:32 PM
    • 5 Posts
    • 0 Thanks
    NottinghamLad
    • #8
    • 14th Mar 18, 2:32 PM
    • #8
    • 14th Mar 18, 2:32 PM
    It does make a difference as i could decide at a later point that I want to pay off early knowing Iím saving on the interest. Thanks for the responses - I really appreciate it
    • NottinghamLad
    • By NottinghamLad 14th Mar 18, 2:34 PM
    • 5 Posts
    • 0 Thanks
    NottinghamLad
    • #9
    • 14th Mar 18, 2:34 PM
    • #9
    • 14th Mar 18, 2:34 PM
    Ok I!!!8217;ll look into that as that would be a very low mortgage rate (unless it comes with product fees etc). But thanks for the suggestion
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