Advice - paying off part of a mortgage
Discussion
In July this year my wife retires from teaching, 34 year stint, the last 7 as a head teacher. She earns well, but deserves the break.
Anyway as well as her pension she gets a reasonably large lump sum ( possibly not large by PH standards) - £65k.
We have a joint mortgage, 3 parts to it, the initial mortgage to buy the house in 2005, and then 2 others for house renovations. Total left of the mortgages is £122k, ( house value is £700k). Split 66k,32k,24k, all with the exact same time to pay off - 9 years 4 months.
Interest rates are at 1.59 until mid 2026.
Early repayment charges apply, approx 5k to pay off completely mortgage 2 and 3 - which was my initial plan.
However I don't particularly want to write off 5k.
So is there anything else I can do? - maybe part pay each of the mortgages, or completely pay off No1 mortgage which has slightly less penalties.
May be there is someway to negotiate the penalties, or maybe the penalties are mitigated by a reduction in the total value to be repaid because you're not paying the full term interest ( it's like this in car finance, not sure about mortgages though)
The main aim is to reduce the outgoings, to counter the drop in income my wife will take ( it's fairly sizeable).
Currently the mortgages are £1259 pm combined, paying two and three off should reduce payments to £650 ish.
I can't see myself investing in anything, I don' t think the returns are there, and my wife got burnt a few years ago when she invested some money only to get back slightly less than she paid in.
Anyway as well as her pension she gets a reasonably large lump sum ( possibly not large by PH standards) - £65k.
We have a joint mortgage, 3 parts to it, the initial mortgage to buy the house in 2005, and then 2 others for house renovations. Total left of the mortgages is £122k, ( house value is £700k). Split 66k,32k,24k, all with the exact same time to pay off - 9 years 4 months.
Interest rates are at 1.59 until mid 2026.
Early repayment charges apply, approx 5k to pay off completely mortgage 2 and 3 - which was my initial plan.
However I don't particularly want to write off 5k.
So is there anything else I can do? - maybe part pay each of the mortgages, or completely pay off No1 mortgage which has slightly less penalties.
May be there is someway to negotiate the penalties, or maybe the penalties are mitigated by a reduction in the total value to be repaid because you're not paying the full term interest ( it's like this in car finance, not sure about mortgages though)
The main aim is to reduce the outgoings, to counter the drop in income my wife will take ( it's fairly sizeable).
Currently the mortgages are £1259 pm combined, paying two and three off should reduce payments to £650 ish.
I can't see myself investing in anything, I don' t think the returns are there, and my wife got burnt a few years ago when she invested some money only to get back slightly less than she paid in.
Put the money in a savings account (or ISA) until the fixed rate ends in 2026. Savings rates around 4.5% are common at the moment, so you’re better off even if you’re paying the top rate of tax on the interest.
That way the bank is essentially paying you to keep the mortgage outstanding.
That way the bank is essentially paying you to keep the mortgage outstanding.
No point in playing off a montage at 1.59% especially with a near 5% (5k) penalty for doing so.
Put it in a high interest account, even paying the tax it'll be better than the combination of the above.
If you'd really like to pay off then just do the 10% or whatever your mortgage permits in each time period.
You could probably overpay by 10% each year (common clause). They might bite your hand off if you wanted to pay off more...but as others have said, why would you? Stick it in the best savings account you can find (and offset some of the tax with ISAs etc).
If you want the effect of only paying £650 a month on your whole mortgage, put it in instant access and withdraw £650 every month the day before your mortgage is due
If you want the effect of only paying £650 a month on your whole mortgage, put it in instant access and withdraw £650 every month the day before your mortgage is due
Everyone is sensibly suggesting that you plonk it into a savings account, as overall you’ll be doing better that way.
However, you say you need to reduce your outgoings. The 5k loss might be unavoidable if you can’t manage the ongoing expense, I suppose?
One alternative - most mortgages allow you to pay down a certain amount before penalties. Could you do that and keep the term the same to see a drop in monthly expenditure?
Or, could you use some of the 65k to offset the ongoing costs, so that you can pay off the mortgage penalty free later on (i.e. put the cash into an account earning good interest, but not one that prevents withdrawals so that you can take some out each month to cover the costs you need to)? With this option, is enough left at the end to clear the mortgages, or not - if not, you might be better taking the hit now?
However, you say you need to reduce your outgoings. The 5k loss might be unavoidable if you can’t manage the ongoing expense, I suppose?
One alternative - most mortgages allow you to pay down a certain amount before penalties. Could you do that and keep the term the same to see a drop in monthly expenditure?
Or, could you use some of the 65k to offset the ongoing costs, so that you can pay off the mortgage penalty free later on (i.e. put the cash into an account earning good interest, but not one that prevents withdrawals so that you can take some out each month to cover the costs you need to)? With this option, is enough left at the end to clear the mortgages, or not - if not, you might be better taking the hit now?
okgo said:
Not a position I’ve been in so can’t be sure, but she will not pay any tax on the interest if she’s not got an income, right?
Thought the tax free allowance was more than enough to cover off a sum of that size in a 4-5% account?
As she is retiring she will have a pension as income.Thought the tax free allowance was more than enough to cover off a sum of that size in a 4-5% account?
thanks for the responses.
I've just got off the phone to the bank, and paying off my two smaller loans incurs £1500 of charges, but also leaves me £24 k for savings.
I can then put this into the final loan when it's due for renewal or use the annual 10% penalty free option, which should reduce it to circa £35k
I should then be able to pay that off in 3 years ish, if I increase my monthlies to £1000.
I've just got off the phone to the bank, and paying off my two smaller loans incurs £1500 of charges, but also leaves me £24 k for savings.
I can then put this into the final loan when it's due for renewal or use the annual 10% penalty free option, which should reduce it to circa £35k
I should then be able to pay that off in 3 years ish, if I increase my monthlies to £1000.
It amazes me that the lending institutions enforce the penalty on a mortgage at 2%.
Stick it in a deposit account and manage the cash flow.
Going to do a typical PH thing now that I normally despise. If your wife was a head teacher and cant do this simplest of financial management it is hardly surprising education is where it is.
Stick it in a deposit account and manage the cash flow.
Going to do a typical PH thing now that I normally despise. If your wife was a head teacher and cant do this simplest of financial management it is hardly surprising education is where it is.
Dixy said:
It amazes me that the lending institutions enforce the penalty on a mortgage at 2%.
Stick it in a deposit account and manage the cash flow.
Going to do a typical PH thing now that I normally despise. If your wife was a head teacher and cant do this simplest of financial management it is hardly Isurprising education is where it is.
I agree with you that it's a despicable thing to suggest that teaching ability has got anything at all to do with financial knowledge. The two things are completely unrelated, even if she taught Maths.Stick it in a deposit account and manage the cash flow.
Going to do a typical PH thing now that I normally despise. If your wife was a head teacher and cant do this simplest of financial management it is hardly Isurprising education is where it is.
My guess is the OP's partner probably could work it out but there's no harm in asking for other opinions.
Dynion Araf Uchaf said:
thanks for the responses.
I've just got off the phone to the bank, and paying off my two smaller loans incurs £1500 of charges, but also leaves me £24 k for savings.
I can then put this into the final loan when it's due for renewal or use the annual 10% penalty free option, which should reduce it to circa £35k
I should then be able to pay that off in 3 years ish, if I increase my monthlies to £1000.
Why are you even considering paying it off at 1.59%?? I've just got off the phone to the bank, and paying off my two smaller loans incurs £1500 of charges, but also leaves me £24 k for savings.
I can then put this into the final loan when it's due for renewal or use the annual 10% penalty free option, which should reduce it to circa £35k
I should then be able to pay that off in 3 years ish, if I increase my monthlies to £1000.
Put your cash in the bank and enjoy the (relatively) high interest rates then pay the mortgage off when rates come down or you get to the end of your fixed rate.
Dynion Araf Uchaf said:
thanks for the responses.
I've just got off the phone to the bank, and paying off my two smaller loans incurs £1500 of charges, but also leaves me £24 k for savings.
I can then put this into the final loan when it's due for renewal or use the annual 10% penalty free option, which should reduce it to circa £35k
I should then be able to pay that off in 3 years ish, if I increase my monthlies to £1000.
Why would you pay an equivalent of a years interest on all your combined loans to pay off early? I've just got off the phone to the bank, and paying off my two smaller loans incurs £1500 of charges, but also leaves me £24 k for savings.
I can then put this into the final loan when it's due for renewal or use the annual 10% penalty free option, which should reduce it to circa £35k
I should then be able to pay that off in 3 years ish, if I increase my monthlies to £1000.
You could stick it in an account with Yorkshire building society and get paid 4.8% interest?
This is a textbook example of when not to pay off a mortgage. Tiny interest rate, ERC in place, savings rates are half decent. Put it in a saving account until the fixed term ends and you can always dip into it to boost income if required.
Edited by anonymous-user on Monday 3rd June 12:50
Countdown said:
I agree with you that it's a despicable thing to suggest that teaching ability has got anything at all to do with financial knowledge. The two things are completely unrelated, even if she taught Maths.
My guess is the OP's partner probably could work it out but there's no harm in asking for other opinions.
But a head teacher is responsible for the schools budget and finances.My guess is the OP's partner probably could work it out but there's no harm in asking for other opinions.
This is not financial knowledge it is simple sums.
tbf - it's the wife's decision, so I'll show her this thread and see what she says.
The wife will have a pension and a part time salary from working in a new non teaching job, she'll be down about £1000 net.
The only reason I am contemplating paying some of it off, is the reduction in outgoings, will somewhat offset the loss of household income. I don't particularly need to do it, but it would be nice. And even I was uncertain about paying off a mortgage with such a low rate attached to it and I guess I was also looking for other options, a savings account hadn't really entered my radar as I thought they were all generally a bit s
t ( certainly are with Barclays)
The wife will have a pension and a part time salary from working in a new non teaching job, she'll be down about £1000 net.
The only reason I am contemplating paying some of it off, is the reduction in outgoings, will somewhat offset the loss of household income. I don't particularly need to do it, but it would be nice. And even I was uncertain about paying off a mortgage with such a low rate attached to it and I guess I was also looking for other options, a savings account hadn't really entered my radar as I thought they were all generally a bit s
t ( certainly are with Barclays)Dixy said:
But a head teacher is responsible for the schools budget and finances.
This is not financial knowledge it is simple sums.
They are but a Local Authority School will have an SBM whose responsibility is Finance (as well as having the support of the LA's finance team). if it's an Academy school it will most likely have a Finance Director. Schools have Finance. HR, IT, catering and Site management teams. You wouldn't expect the Headteacher to know anything more than the basics for each one.This is not financial knowledge it is simple sums.
ThingsBehindTheSun said:
If you are completely risk adverse and want a guaranteed return I would lock it away in the highest interest account I could find for a year or two.
No point paying off the mortgage early if it is going to cost £5K in early redemption penalties and is only 1.59%!
It’s risk averse, not adverse. Different words, different meaning. No point paying off the mortgage early if it is going to cost £5K in early redemption penalties and is only 1.59%!
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