Borrowed 50k on the mortgage. Best way to pay it back...

[TT86]

Good morning folks

We have borrowed an extra 50k on our mortgage for home improvements. Just renewed a 5yr deal at 3.79%.

We are hoping to almost clear the 50k over these five years. Is it best to overpay £7-800 a month (aware we can overpay 10% a year) or save the money, earn some interest and clear it at the end of the term?

Sorry probably a really simple question!

[trickywoo]

If you can get more net interest on a deposit than the mortgage interest do that and pay the 10% lump in one go.

If you can’t beat the interest pay it down as you go.

[ATM]

If you have a fixed interest mortgage and interest rates go Up for the next few years then you could make more with money paying interest. You could also try premium bonds or other things. Obviously any money you make will be taxable.

If interest rates go down and you're not making money then you can over pay. Check there is no limit in how much you can over pay in a month / quarter etc.

If you can't withdraw the money once you have over payed then you lose all flexibility but that could be a good thing if you don't trust yourself to spend it on a car for example!!!

[Spare tyre]

Request a final payment quote

I have a Similar amount left and I’m sure the redemption penalty was around 1500

If you are with hsbc I know you can get the quote instantly by logging into the webpage but not the app

[trickywoo]

Spare tyre said:

Request a final payment quote

I have a Similar amount left and I’m sure the redemption penalty was around 1500

If you are with hsbc I know you can get the quote instantly by logging into the webpage but not the app

You haven’t read the question. It’s £50k extra he’s borrowed that he wants to repay asap, not the entire mortgage.

[Spare tyre]

trickywoo said:

Spare tyre said:

Request a final payment quote

I have a Similar amount left and I’m sure the redemption penalty was around 1500

If you are with hsbc I know you can get the quote instantly by logging into the webpage but not the app

You haven’t read the question. It’s £50k extra he’s borrowed that he wants to repay asap, not the entire mortgage.

My bad, apologies

[Countdown]

TT86 said:

Good morning folks

We have borrowed an extra 50k on our mortgage for home improvements. Just renewed a 5yr deal at 3.79%.

We are hoping to almost clear the 50k over these five years. Is it best to overpay £7-800 a month (aware we can overpay 10% a year) or save the money, earn some interest and clear it at the end of the term?

Sorry probably a really simple question!

Overpay rather than "saving and then paying off a lump sum". To match the 3.79% interest you're paying on the mortgage you'd need an investment that pays at least a fixed 4.7% risk free.

[TT86]

Countdown said:

Overpay rather than "saving and then paying off a lump sum". To match the 3.79% interest you're paying on the mortgage you'd need an investment that pays at least a fixed 4.7% risk free.

Thanks folks some very useful replies!

Thanks Countdown, looks like a monthly overpayment is probably better then really. I can overpay 5k a year so will do that and save any extra to pay at the end of the 5 years.

Trying to treat this 50k as a loan so it's all but gone at the end of year 5.

[Hustle_]

Countdown said:

Overpay rather than "saving and then paying off a lump sum". To match the 3.79% interest you're paying on the mortgage you'd need an investment that pays at least a fixed 4.7% risk free.

...assuming that..?

[Countdown]

Hustle_ said:

Countdown said:

Overpay rather than "saving and then paying off a lump sum". To match the 3.79% interest you're paying on the mortgage you'd need an investment that pays at least a fixed 4.7% risk free.

...assuming that..?

Assuming that he's a 20% taxpayer so his interest income will be taxed.

[Hustle_]

Countdown said:

Hustle_ said:

Countdown said:

Overpay rather than "saving and then paying off a lump sum". To match the 3.79% interest you're paying on the mortgage you'd need an investment that pays at least a fixed 4.7% risk free.

...assuming that..?

Assuming that he's a 20% taxpayer so his interest income will be taxed.

...unless they are able to save however much of that £50k is above their personal savings allowance within savings products where the interest is not taxable, ISAs for example, in which case they will only need to achieve 3.79% interest on their savings to match the interest savings on the overpayment.