Personal Finance & Money Asked on May 22, 2021
I have a mortgage on my primary home, which consists of two sub-account: one is for the original loan with about £30K remaining on it; the other part is the extra borrowing to build an extension – that part has about £40K left on it. These two parts are on different schedules (rates/periods) which are like this:
I have extra money now that I can pay toward the mortgage to pay it out sooner. I have three options:
Intuitively (rightly or wrongly) I feel that I should keep saving for the next 18 months and then in October 2022 pay out as much as I can – however I’m struggling to get all the math to verify this.
Can somebody help me with the math here to determine the right option?
Note that I have no other debt and have sufficient other means to cover "worst case scenarios" (e.g. no job for 6 months, etc.)
There is no good reason going for option 2 if the penalty is exactly the same as the expected interest. You are paying now the same money that you would need to pay otherwise but its gone. That is a 0% return on investment. One can still do better even with a savings account, although not by much.
After October '22 the ROI on account 2 will be 3.59% which is pretty considerable for a risk-free "investment" and this will beat any investment you can do now in account 1 as the time frame for account 1 is only 30 months = 2.5 years left and this will give you a total return on anything invested now of less than 3%
Answered by Manziel on May 22, 2021
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