to overpay or to not overpay, that is a question

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26 Aug 2009 00:00 by flyingcat Star rating in London/Mojacar. 85 posts Send private message

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Our Spanish mortgage allows us to overpay certain percentage each year without penalty.

My question is whether we should overpay this year or not.
 
When we bought our property a couple of years ago GBP to Euro was 1/1.4, last year when we did overpayment we got rate of 1/1.27.
 
The dilemma we facing is that money right now parking in UK bank account earns less than 1% interest. But if we overpay the gain on deduction of mortgage will be eaten away by FX lost.
 
Our mortgage interest rate is Euribor + 1%. If we say, exchange £20k into Euro to overpay a mortgage at balance of appr £100k. Should we do it?
 
Appreciated any one can give us advice.




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26 Aug 2009 14:13 by SEAK Star rating. 22 posts Send private message

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I would pay more even if its just for one year its less time paying the mortgage and for what sounds like earning nothing back in the UK, also if interest rates go up which they are likely to do then your payments are going to increase anyway so I would either put it away for when this happens or start to pay it off as quick as you can. Or maybe look into investing in another property while the prices are low but always make sure you can afford them both when mortgage rates start to increase!You are lucky you have options many people don't and are desperatley trying to sell as they can't afford them.





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26 Aug 2009 16:25 by kev2006n Star rating in Sussex and Playa Fla.... 343 posts Send private message

 If you look around and are prepared to tie your money up for a while you can earn a lot more than 1%.( If you pay a lump off the mortgage you have tied it up for good.) I would be tempted to do that at the moment and there is still a chance that sterling would improve further against the Euro. Opt to have the income monthly so it does give you additional income. There are rates of 5% or more around! There is a good chance of making a lot more than you are paying in interest at the moment and the chance of an improved exchange rate. Kevin

 



This message was last edited by kev2006n on 26/08/2009.



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28 Aug 2009 12:02 by Smiley Star rating in San Pedro de Alcanta.... 2502 posts Send private message

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Inclined to agree with kevin but its really a matter of personal choice. Recent activity means the FX rate is piss poor again and at some stage in the future (if Brown and Darling - or their replacements ever come up with a viable plan) this should improve. You can get better than 1% on your cash if you look around - without risk - but make sure you know exactly what you are getting and whether there are any tie-ins. If you do pay off the mortgage then it will be next to impossible and extremely costly to ever get it back so in the event you need the cash at some stage in the future you have lost that option. It really is up to you though.



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28 Aug 2009 14:51 by flyingcat Star rating in London/Mojacar. 85 posts Send private message

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Thanks for you replies.

The problem is that no matter how hard you look, right now in UK any saving with half decent rate you have to tie up your cash. 

We have to end of year for this year's overpay allowance. Just hope the sterling will recover a bit. 





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31 Aug 2009 11:44 by bakeja Star rating in Manilva. 49 posts Send private message

 A couple of observations :

 

Normally overpaying a mortgage with money you would have put on deposit is a great idea because you pay tax on deposit interest but don't on the mortgage interest saved.  While interest rates in both countries stay low (for instant access accounts at least) this advantage is not so important and the exchange rate considerations become all important.

If you do overpay a large sum at some stage you are obviously increasing your exposure to the Euro over and above the equity you already have in the house.  This may not be such a bad thing.  Would you prefer to have the maximum possible exposure to sterling strengthening over time or have at least a chunk of capital in Euros in case the opposite happens and Brown's Britain sinks under the weight of its debts?  I've probably given you a clue as to my bias in that last comment.

But what would be a good rate to make your move?  1.13 today.  Anyone see much improvement by the end of the year?



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31 Aug 2009 12:21 by foxbat Star rating in Granada. 1114 posts Send private message

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[quote]...But what would be a good rate to make your move?  1.13 today.  Anyone see much improvement by the end of the year?[/quote]

In a word...Nope!

I feel a Victor Meldrew moment coming on...

Every time Gordon or Alister opens his mouth sterling takes another hit.

Anyone remember Tony / Gordons comments... 'if sterling ever drops below 1.3 we will go to the country and have a referendum on joining the euro...'  just more blah, blah, blah.

Someone should buy them a hot-air balloon, (no butane / propane required) strap them aboard and let them just float off back to Cloud Cuckoo Land or La-La land.

Britain should have joined the Euro years ago; I doubt now whether we even meet the entry requirements.

fb

 



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31 Aug 2009 15:31 by Smiley Star rating in San Pedro de Alcanta.... 2502 posts Send private message

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Ithink your last sentence hits the nail on the head FB.

Unlikely any improvement prior to the end of the year QE is not having the impact it was supposed/alleged to. Prospects of rising unemployment, lack of growth etc will all have their effect - this in a time when the US is reporting more positve data.

Better than expected (slightly) GDP numbers may kickstart sterling a little but increasing public debt will probably lick that one into touch. Time to batten down the hatches methinks.



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31 Aug 2009 16:40 by foxbat Star rating in Granada. 1114 posts Send private message

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...Time to batten down the hatches methinks...

Again? Haven't managed to unbatten from the Christmas 2008 run on sterling!

fb

 



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31 Aug 2009 17:33 by Smiley Star rating in San Pedro de Alcanta.... 2502 posts Send private message

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Perhaps I should say extend the battening ..........................................apologies oh wise and sage one (LOL - just so you know that no offence intended).



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