Lump sum off mortgage or save?

Status
Not open for further replies.
D

Deisce

Registered User
Messages
114
Hi,
I have come into some inheritance. Will be 55k after tax. I am wondering what to do. I took out a 345000 mortgage 3 years ago . Due to lump sums and regular payments we currently owe 269k on it. We have a variable rate of 4.15% with TSB. I would estimate the house is worth around 260 k (bought it for 375k) now.

We will hope for something bigger (its a 3 bedroom terrace) in next 4-5 years.

Do you think I should take the full amount off the principle now or save it in preparation for a deposit in years to come? I may be able to save around 500-700 a month till then. Does anyone know that with the house out of negative equity, would I be able to try and get a better rate with the bank?
 
Any words of wisdom or advice at all. Its burning a hole in my current account;)
 
Deisce said:
Hi,
I have come into some inheritance. Will be 55k after tax. I am wondering what to do. I took out a 345000 mortgage 3 years ago . Due to lump sums and regular payments we currently owe 269k on it. We have a variable rate of 4.15% with TSB. I would estimate the house is worth around 260 k (bought it for 375k) now.

We will hope for something bigger (its a 3 bedroom terrace) in next 4-5 years.

Do you think I should take the full amount off the principle now or save it in preparation for a deposit in years to come? I may be able to save around 500-700 a month till then. Does anyone know that with the house out of negative equity, would I be able to try and get a better rate with the bank?
Click to expand...

If you pay the 55k off your mortgage you will have a loan to value of 82% at best so unfortunately you will not qualify for a better rate.

If you cannot invest it at a higher rate than you are paying on your mortgage then the sensible option (all other things being equal) would be to pay down the mortgage.

If you are looking to buy in the coming years then you should put the money in a high interest savings account as if you pay it off the mortgage, you may not be able to get your hands on it again.

How long before you buy your new house? What will the purchase price be? If you save 700pm this will be 8400 per year so you need to work out how much of a deposit (plus stamp?) you will require.

[broken link removed]
 
By making a lump sum payment you are effectively getting a once off savings rate of 4.15% on this money. The problem then is that you have no back up for things you might want to do in the future. Because your house is in negative equity I think I would be inclined to hold on to the money and enjoy it now. Let the house look after itself over the term of the mortgage.
 
My thinking on it would be if you can get a higher interest rate then go with that, think thats unlikely but dont quote me. I would pay 30k or 40k off the mortgage and have the remainder as a sort of back up fund if required the way the economy is anything is possible and to have some funds on tap is key, for me anyway.
 
Status
Not open for further replies.
Back
Top