Any financial advisors

[JOHNBOY42]

I am selling my old house with the mortgage owing quite low and bought another one and took out a large mortgage while the sale was going through, with the view that when I sell the old one and get the funds off it I will pay off the large mortgage.
The sale is due to go through in the next couple of weeks and I was going to give my sale funds to the building society to get me back to a low mortgage but I am not very financially aware so would I be better off paying the large mortgage off or is there somwhere I can invest this to get a monthly amount to cover the mortgage plus extra and still keep my capital or should I pay it off.......I am on a current 2 year deal with 18 months left of a 4.99%

 

[FredFlintstone]

Johnboy,

Couple of things. Firstly, if you've got a to year discounted deal, you're probably gonna have a fairly hefty penalty to pay if you pay off more than the agreed amount before the two year deal is up. Ocasionally there's is no tie in period but that's very rare on a fixed discounted deal. Some also have an extended tie in period for say two years AFTER the discounted rate ends. However, they're normally for extremely heavily discounted rates which 4.99% isn't.

Another thing to consider is the rate of income tax you pay. Even if you only pay lower rate tax, you're gonna have to earn 6.25% interest in order to break even. If you're a higher rate taxpayer you'll have to earn around 8.4% interest to break even.

On the face of it, and assuming you've got an early redemption penalty, I reckon you'd probably be better off investing until your mortgage tie in ends and then paying the lump sum into your mortgage. However, this depends on how much the mortgage redemption penalty is and what rate you can get on your investment in addition to what rate of income tax you pay. Therefore, without seeing hard facts and figures it's impossible to say what the most sensible option is.

One other thought. If you're lum sum is enough, have you thought about investing in property? Buying at auction (being careful in terms of what you buy, setting a ceiling and sticking to it and also knowing how much to buget for renovations) and developing and selling again. Yes, you'll be liable for tax on the profits but you could turn around three, four, five or even six properties in 18 months. With profits of £10,000 plus on each one (and that's being conservative, providing you're sensible and do your research), it's far more that you could earn in interest in a bank account.

Regards

Fred

 

[kevnurse]

You will pay out more money in interest than you will receive in interest. You should pay off the new mortgage as soon as you can. The penalty for doing so will be stiff, but worth paying.

 

[empip]

You could investigate 'Offset' or 'Current Account' type mortgages.

The 'Offset' principle is simple: most mortgage borrowers also have savings, even if they are small, and using this money to cancel out mortgage debt makes sense. Savers avoid paying tax on interest that their deposits would otherwise have earned. And because offset mortgage lenders calculate interest daily, every pound on deposit works hard to reduce the cost of borrowing.
Not to mention the fact that in a low interest rate environment, any savings you have are effectively earning interest at a higher rate than most mainstream savings accounts will pay.

With Current Account Mortgages, the bank account and mortgage are combined so customers view just one statement and see one balance. For example, if there is £2,000 in the current account and the mortgage is £80,000, the customer's balance will register £78,000 overdrawn. The balance is calculated daily and the homeowner pays interest only on the balance. CAMs offer the same services as an ordinary bank account. Customers can also add any savings into the CAM account to reduce the debt balance. Any other debts, such as personal loans or credit cards, can be transferred to the account. The homeowner, typically, pays the same interest rate across the lot.

The CAM looks interesting, depending on the small print, one could take the ride and see how it pans out ... One does retain the option of grabbing funds in an emergency, at a lower interest rate than a personal loan... If you get my drift.

But I agree - sfa - is the best mortgage, have enjoyed one for a decade or more - can reccomend it

http://www.moneyfacts.co.uk/mortgages/bestbuys/caom.aspx?pageno=1
NB with the bestbuys !! especially DD.
DD
Draw Downs permitted
OP
Overpayments Allowed
PH
Payment Holiday
UP
Underpayments allowed

 

[JohnD]

Make sure you have paid off any other loans or debt you have, including credit cards, as the interest you pay here will be much higher than your mortgage interest, and much much much higher than you can get on savings.