10,000

[angeldraws]

On my 10K savings i receive 5% p.a.
I pay 5.5% on my 58,000K mortgage.
If i pay off 5K this year and 5K next year (cos i will incur a charge if i pay the whole 10K) - how much will i save over the 2 years, assuming both interest rates stay the same?
Is it worth paying the 10K off the mortgage for the amount i will save, or will i gain more by leaving the savings in the bank earning 5%p.a.??? Confused.......

[dancecaller]

Read the small print.
Are your savings are instant access or is there a penalty for taking money out? Anyway you will lose the interest from the day you take the money out
Some mortgages save interest from the day you pay the money off, some are different so timing may be important. Mine changed over the time I had it.
Worth leaving some savings to give a bit of flexibility too, but of course if you do pay off the mortgage you can build up your savings with the repayments you aren't making

Is the 5% you pay gross or net.
If it is 5% before tax then you only get 4%. So either pay the mortgage off or put it in a cash isa so that you get interest tax free.
If it is in an isa then taking it out means you lose that years chance of tax free savings for ever, so I would probably leave it there.

Are you more or less confused now?
Your bank or BS probably have Financial Advisors who will not charge for advice (though they only reccomend the best their bank offer, not the absolute best). But they will help you work out the best time to pay off a lump.

[angeldraws]

Hi - dancecaller - thanks for your feedback - yea the dosh is in a mini isa - i can put 3K in per annum, and it's tax free but I lose the interest if i withdraw any money. My mortgage is on a daily rate and i am tied in for another 2 years - i am allowed to pay off 10% in any 12 month period without incurring a penalty, it's just the amounts i'd save/lose where i get confused.

[dancecaller]

My calculation is that the �5000 of your mortgage would be paying �275 interest, in the isa it's earning �250. So this year you would save less than �25.
Less because there will be some time when its not earning interest in either - while the isa cheque clears into your current account and the CA cheque clears to the mortgage. Say a week and a half, so you've lost �7ish. (More if you post the cheques).
So maybe you save �18 this year and �18+�25 next year.
That's �61 in 2 years, then �50 a year after that. (if rates stay the same)

You lose the flexibility of having the money if you needed it, and you can't put it back into the isa once you've taken it out.