Maths magician required. Chami

#1
Hi everyone. I would like some help please. I have a mortgage I would like to pay off asap so I can have no debts. The mortgage is my only debt.

I have a lump sum I can pay towards the mortgage but will be charged for doing so. I have the option of buying shares in my company risk free at a 20% discount for 3 years savings.

I have already paid 10% of my balance this year so future overpayments will be charged at 5%.

Here are my figures

Interest rate 2.94%

10 years left on mortgage

Mortgage balance = £110000

Lump sum = £50000

Monthly payment = £1060

Overpayment 5%



I have been trying to work out the best way to do it but my little mind can't cope.

My I can buy shares @ £1.80 and if I sell at current price of £2.25 I can make around 4K profit. Investment over 3 years £14400 (£400pm) , do I pay this off the mortgage or invest it in the shares this is an option to buy shares and I can take back the money I saved if shares are too low at the 3 year point.



I have tried the overpayments calculator but I can't work out the best way on saving interest payments over 4 years.

Please help!!!

#2
Suppose you had just one thousand pounds for this...



If you reduce your mortgage then the amount it saves you in interest each year would be £29.40, less the charge for over-paying (you haven't told us how much it would be). So in the course of three years you save almost a hundred pounds in interest.



However, if instead you use the grand to buy shares in your company, you get a holding with a face value of £1,250 for your grand. If the value of the shares does not change for three years then you have gained 250 pounds but of course have had to pay the extra hundred pounds in interest. You have also saved yourself the fee for making an early repayment of your mortgage, but there may be costs in selling your shares.



Of course, we don't know what will happen to the shares over a three-year period. The price may increase or decrease, and you will probably receive some dividends as well.

#3
Regardless of shares, it seems crazy to incur a 5% charge for overpaying so I would plan to pay the 10% a year and leave it at that. If you are on a fixed rate deal you may well be able to make unlimited overpayments after the fix ends - worth looking at?



I've also heard of people get round the 10% limit by asking the mortgage co to reduce the term, meaning the monthly payment automatically rises - again this may be worth looking at? There is a risk that if your circs change and you want to reduce the term again they may not allow it - but with your large lump sum you should be ok.

#4
Thanks for the reply.

The cost of over payment is 5% of whatever I pay in.

Would it be better to take the 5% hit on paying 50k off (£2500) to lower my balance and would I save more in interest over the 48 months left of my fixed term than just making the allowed overpayments of 10% of the balance each year.

#5
I have recently reduced my term from 21 years to 10 years because that is the minimum term they would allow.

Surely paying 5% of 50k is better than paying 2.94% of 110000 this year

#6



I have recently reduced my term from 21 years to 10 years because that is the minimum term they would allow.

Surely paying 5% of 50k is better than paying 2.94% of 110000 this year
Originally posted by Chami


What's happened to the remaining 60k? You'll still be paying interest on that.

#9
Making an overpayment will save you 2.94% but cost you 5%. Put simply you would be around 2% down. Plus whatever interest you could have earned on the overpayment.



Not making an overpayment will cost you 2.94%each year but 'save you' whatever interest you make. If you open a few regular savers/Nwide Flex and Tesco current accounts you can earn between 3 and 5% interest, wiping out your mortgage interest. Much better off that way, and your money is safe. Or you could invest in P2P at 12% or more if you're prepared to take some risk.

#10
Assume you can afford the £1k payment from income.



does your 5% fee change when you go over the next year



any savings net over 2.94% don't overpay



Your next 10% ERC free overpayment(£10k) is clearly better sitting in savings as it will cost 5% but only save a max of 2.94%



Chances are the next(2nd £8k) ERC free ovepayment may also best in savings for one year and possibly 2 if the ERC drops to 4% it needs a re calc.



Does the share scheme have an interest component if cashed in.

Do you fill your ISA



the opportunity cost of the share schemes are usually worth it

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