Mortgage overpayments?

[Smiley198700]

Evening all

Need a bit of advice on mortgage overpayments. We have come into some money (£4500) and are trying to work out the best thing to do with it. We currently owe £131000 and are 2 years into a 4 year fixed rate mortgage. Borrowed £136000.

We are trying to figure out if we are better overpaying by £500 (max nationwide let us) for 9 months, putting it in an ISA until April 2017 when we need to renew or suffer a bit of early repayment fees and paying the full £4500 off now?

First world problems I know but we just put the figures into an overpayment calculator (which seems to assume you want to overpay forever) and it's pretty amazing when you see how much less interest you pay/ quicker it's paid off even with £100 a month overpayment

Any advice would be welcome

[Sarnie]

Doing anything that triggers any ERC payments would negate the benefit of doing so!

[mike9009]

We had a similar dilemma and also have a Nationwide Mortgage.

For some reason we have two different mortgage accounts with the Nationwide which allows us to pay off £1000 per month. I would pay off £500 for nine months if I was in your shoes. It is amazing how much it takes off the full term of the mortgage and how much money it saves.

I think moneysavingexpert.com has a simple calculator to show you how much is saved over the lifetime of the mortgage.

Mike

[Smiley198700]

mike9009 said:

We had a similar dilemma and also have a Nationwide Mortgage.

For some reason we have two different mortgage accounts with the Nationwide which allows us to pay off £1000 per month. I would pay off £500 for nine months if I was in your shoes. It is amazing how much it takes off the full term of the mortgage and how much money it saves.

I think moneysavingexpert.com has a simple calculator to show you how much is saved over the lifetime of the mortgage.

Mike

That's what I was thinking, the money will be in an ISA gaining interest anyway with us manually paying £500 to the mortgage every month. We will definitely be overpaying by £100 after though, it knocked something like 6 years off the remaining 28. Would love to be mortgage free by 40 but that's probably wishful thinking at the moment...

[jmorgan]

Few years ago I came across a link from Money saving expert to a great spread sheet.
http://forums.moneysavingexpert.com/showthread.php...

Seems PH found it as well, came up in the same search
http://www.pistonheads.com/gassing/topic.asp?t=818...

Not a financial expert or even close but after punching the figures in it gave us food for thought.

[Claudia Skies]

How much are the early mortgage repayment fees?

What rate are you paying on the mortgage?

What rate can you get in the ISA?

[davepoth]

Sounds like you've got the right plan - pay off the maximum you can as early as you can without getting stung for the early repayment charges.

[Sharted]

Just be aware that when you withdraw from the ISA in 2017 you lose the tax free allowance that you have built up for ever.

Be better to use an ISA for your long term savings plans and non-ISA for short term.

[Claudia Skies]

Sharted said:

Just be aware that when you withdraw from the ISA in 2017 you lose the tax free allowance that you have built up for ever.

Be better to use an ISA for your long term savings plans and non-ISA for short term.

I agree. The real power of an ISA comes from cumulation of tax-free returns over a long timescale.

Equally, it very rarely makes sense to carry debt which you don't need. Check the figures carefully.

[Smiley198700]

Claudia Skies said:

How much are the early mortgage repayment fees?

Not sure - it seems impossible to calculate, although it was something in the region of £6000 if we were to pay it all off now

Claudia Skies said:

What rate are you paying on the mortgage?

3.6% until April 2017

Claudia Skies said:

What rate can you get in the ISA?

1.4%

Sharted said:

Just be aware that when you withdraw from the ISA in 2017 you lose the tax free allowance that you have built up for ever.

Be better to use an ISA for your long term savings plans and non-ISA for short term.

What do you mean? I thought the allowance was reset every year?

Thanks

[Brite spark]

Smiley198700 said:

What do you mean? I thought the allowance was reset every year?

Thanks

It is, but once money is removed from a previous years isa it can't be put back.

[KTF]

Brite spark said:

It is, but once money is removed from a previous years isa it can't be put back.

Now that the annual allowance is £15k, for most people (except the powerfully built company directors on here of course) that is less of an issue.

Edited by KTF on Tuesday 27th January 11:21

[Claudia Skies]

Smiley198700 said:

Claudia Skies said:

How much are the early mortgage repayment fees?

Not sure - it seems impossible to calculate, although it was something in the region of £6000 if we were to pay it all off now

Claudia Skies said:

What rate are you paying on the mortgage?

3.6% until April 2017

Claudia Skies said:

What rate can you get in the ISA?

1.4%

OK. So the difference between what you can make tax free in your ISA and what you pay as mortgage is 3.6 - 1.4 = 2.2% a year.

With £4,500 to play with, that 2.2% means it will "cost" you (4,500/100) x 2.2 = £99 a year. Let's call it £100.

So you need to find out EXACTLY how much your mortgage company will penalise you for making a partial repayment. You are about 2 years into a 4 year fixed term. So if they want to charge you more than £200 you now know the answer to your original question....

Edited by Claudia Skies on Tuesday 27th January 11:20

[BoRED S2upid]

Overpay by the max every month don't worry about the ISA bit it's hardly worth it when current accounts are offering more in the short term.

[SlidingSideways]

Do you pay into a savings account regularly?
If so, just stick the £4.5k in an ISA and redirect whatever you would normally save to overpaying the mortgage until you've overpaid £4.5k.
That way you get the interest in the ISA/savings from day one and you won't lose the tax free allowance on that amount by taking it out.

[oyster]

KTF said:

Brite spark said:

It is, but once money is removed from a previous years isa it can't be put back.

Now that the annual allowance is £15k, for most people (except the powerfully built company directors on here of course) that is less of an issue.

Edited by KTF on Tuesday 27th January 11:21

Unless you're using all or a large chunk of that annual allowance and building the pot year after year, then using an ISA at all for savings is a bit pointless.

As a couple you can get 5% interest on savings up to £13,500, 4.5% on savings up to £28,500.
And you can still get 3.5% if you have £88,500 in savings. This using high interest current accounts (obviously tax needs to be paid from these). But it still beats cash ISAs.

[Smiley198700]

Brite spark said:

It is, but once money is removed from a previous years isa it can't be put back.

Ah yes we know that - that wouldn't be an issue anyway

lots of good advice here chaps - will have to discuss it all with the missus later.

Edited by Smiley198700 on Tuesday 27th January 13:16

[DeuxCentCinq]

Have you not thought about buying some sort of car?

[Defcon5]

DeuxCentCinq said:

Have you not thought about buying some sort of car?

My first thought too.

[Smiley198700]

DeuxCentCinq said:

Have you not thought about buying some sort of car?

Of course I have - could get a nice soft top for that money but head rules over heart here - it's quite staggering when you see the interest you can save by paying off the mortgage early even with something modest like £100/month overpayments