I have a mortgage made up of two parts, should I pay it off or should I re-invest?

Posted on 24 September 2007

I've got a mortgage made up from two parts. The first part was portable from our previous house and currently has £23,000 remaining with one year left on a fixed rate of 3.89% which then moves to a variable rate.The second part is fixed for 9 more months then 0.99% above the bank of England rate for a further three years. There's currently 14 years left on both. I've got £20000 in a fixed rate bond that's almost matured. The question is should I pay it off 23,000 mortgage now which has one more year to run at 3.89% or should I reinvest in another one year fixed bond before paying off the first part of the mortgage.

I can't give investment advice but I would advise against paying off the debt at 3.89%; it is such cheap money that if you have savings (like a bond) getting a higher rate elsewhere, you are making a profit.

I can't tell if you are still tied in when you revert to 0.99 over Bank rate, but if you are then you might as well just ignore that bit, and pay off £20,000 of the first mortgage when the interest rate has come to an end.  The other £3,000 can be kept on and remortgaged to whatever three year rate they have available at the time, so that it finishes at the same time as the section that's on 0.99 over base.

If you're not tied in to either part after one years time, just remortgage to one big mortgage on one good rate in a year, for a lower amount as you can clear the £20,000 that will have matured by then.

Categories: Remortgaging

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