Lump Sum - Pay mortgage / save

1

16024

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Selling an investment property at the moment, and after paying costs should be left with 30k approx. Should I use this lump sum to pay off some of my residential mortgage (3.05% interest) or invest in the best rate interest savings account, or do a bit of both. Considering interest rates will (probably) only go up, does it make more sense to pay off some of the mortgage now or wait? Any advice taken.
 
Is the 30K net of CGT too? What are the details of your residential mortgage (lender, original amount and term, outstanding amount and term, fixed or variable etc.)?

If you don't need the money in the short/medium term then the return on reducing your mortgage would be better than any other guaranteed return elsewhere. For example you effectively get a 3.05% return net by avoiding interest charges that you would otherwise pay. In constrast the standard best deposit rate on offer at the moment is 3.05% gross CAR from Northern Rock which is subject to DIRT at 20%. In general it doesn't make sense to be saving while borrowing. Forget about possible future behaviour of interest rates - this is largely irrelevant. Assuming you have no other pressing need for the money use some of all of it to reduce your mortgage borrowing - e.g. get it down to a manageable level. If this gets you into a lower loan to value ratio bracket for which your lender has a lower rate then make sure to haggle with them if necessary to get it. See the best buys list.
 
Thanks for the reply. Yes, the 30k is the balance after cgt, solicitor etc. I hadn't thought of the net and gross differences between the repayments and the savings. Mortgage it is then. Thanks again.
 
16024,
Do you have any other borrowings? eg. car finance. Do you plan to change your car in the near future. Will this be financed from existing savings or from borrowings? IMHO it does not make sense to pay off a loan at 3.05% only to find that you will need to borrow at 7 - 9% to purchase a car. So, if you have not already switched to saving to replace future car purchases then this is the ideal time to do it and never have to borrow for a car again. Many people who have long cleared their mortgages are still financing their car through unsecured borrowings at high rates.

Have you maximised your SSIA savings before it matures?
 
Bizzy, both cars are paid for and both SSIAs maxed out. Will use the money to pay off some of the mortgage.
 
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