Monthly Interest Help Wanted

Snapelover

Hi

Each year I find the best interest rates offered on an instant access account, stick my savings in it and, at the end of the 12 months, pay the interest earned off my mortgage.

At present, I have my money in a Kaupthing Edge instant access account and they pay my interest monthly.

Which of the following two options will earn me more money to pay towards my mortgage:-

1. Paying the interest earned each month as a mortgage overpayment, or

2. Leaving the interest which is addedd each month until the end of the 12 months and making a lump sum overpayment.

YorkshireBoy

It's likely your money will work better for you by overpaying your mortgage as soon as you have money available.

Whether it is or not will depend on...

Your tax status/spouse's tax status.
The respective interest rates on each product.

However...

You may want to keep an emergency fund handy.
Can you overpay without penalty throughout the year, or just once per year?

Nick_C

My understanding is that if you make small monthly overpayments on your mortgage, they won't be taken into account until the end of the year. You can make a substantial overpayment at any time but specify that you are making a capital repayment, alternatively, do what you are doing and make the overpayment just before the end of the mortgage account year, so it reduces your capital.

Obviously not all mortgage accounts are the same, but certainly with some mortgages I have had the value of any small monthly overpayment would not be taken into account until year end.

Probably the best thing is to put as much as you can into a cash ISA each year, and make yearly capital repayments.

Snapelover

YorkshireBoy wrote: »

It's likely your money will work better for you by overpaying your mortgage as soon as you have money available.

Whether it is or not will depend on...

Your tax status/spouse's tax status.
The respective interest rates on each product.

However...

You may want to keep an emergency fund handy.
Can you overpay without penalty throughout the year, or just once per year?

The money is in an account in my name only, I don't pay tax. The interest rate is 6.50%. Our current tracker mortgage is 5.99%.

We can overpay on our mortgage as many times as we like.

Snapelover

Nick_C wrote: »

My understanding is that if you make small monthly overpayments on your mortgage, they won't be taken into account until the end of the year. You can make a substantial overpayment at any time but specify that you are making a capital repayment, alternatively, do what you are doing and make the overpayment just before the end of the mortgage account year, so it reduces your capital.

Obviously not all mortgage accounts are the same, but certainly with some mortgages I have had the value of any small monthly overpayment would not be taken into account until year end.

Probably the best thing is to put as much as you can into a cash ISA each year, and make yearly capital repayments.

If we make an overpayment, whether small or large, it is taken into account straight away.

Snapelover

Thanks for the help but it doesn't really answer my question (which is really hard to explain).

I receive monthly interest in the Kaupthing Edge account. Will I earn more money on my savings if I leave all monthly interest payments in the account or will I earn more money if I take out each monthly interest payment as it is paid? I hope this makes sese.

YorkshireBoy

Haven't you answered your own question in post #4?

In simple terms, you are earning more from your savings than you are paying out on your mortgage...around 0.5% more.

In your position I wouldn't be making any overpayments on my mortgage at the moment.

Snapelover

YorkshireBoy wrote: »

Haven't you answered your own question in post #4?

In simple terms, you are earning more from your savings than you are paying out on your mortgage...around 0.5% more.

In your position I wouldn't be making any overpayments on my mortgage at the moment.

I haven't answered my own question but I am obviously not asking what I want to know correctly.

The advice I require is regarding the amount of interest I will receive over 12 months and not about whther to pay it off my mortgage or not.

e.g. Say I have £1000 in Kaupthing Edge and the interest rate is 6.5^ paid monthly.

After month 1 I will have £1000 plus interest earned that first month. The next month I will have slightly more and interest will be added and so on (I don't know how it is worked out so I cannot put exact values).

My question is will I end up with more money after 12 months if I:-

a) don't touch any of the interest/savings until 12 months is over, or

b) withdraw the interest earned after month 1, and so on, (which I will pay towards my mortgage_.

I hope I have made myself understood.

sloughflint

Snapelover wrote: »

I haven't answered my own question but I am obviously not asking what I want to know correctly.

The advice I require is regarding the amount of interest I will receive over 12 months and not about whther to pay it off my mortgage or not.

e.g. Say I have £1000 in Kaupthing Edge and the interest rate is 6.5^ paid monthly.

After month 1 I will have £1000 plus interest earned that first month. The next month I will have slightly more and interest will be added and so on (I don't know how it is worked out so I cannot put exact values).

My question is will I end up with more money after 12 months if I:-

a) don't touch any of the interest/savings until 12 months is over, or

b) withdraw the interest earned after month 1, and so on, (which I will pay towards my mortgage_.

I hope I have made myself understood.

I think I understand you.
What you need to understand is the 6.5% is the AER ie for the year if left in the account and includes compounded interest.

Your savings rate is better than your mortgage rate. While it stays like this, no need to overpay.

YorkshireBoy

Snapelover wrote: »

My question is will I end up with more money after 12 months if I:-

a) don't touch any of the interest/savings until 12 months is over, or

b) withdraw the interest earned after month 1, and so on, (which I will pay towards my mortgage_.

a)

But your question is more "which method will mean I lose less?"...because both approaches WILL LOSE YOU MONEY if you withdraw interest from your savings account to pay down your mortgage.

I say again...it doesn't make sense to pay anything off your mortgage while ever your savings account is paying more than your mortgage is costing you.

Snapelover

Thanks to you all.

I will leave our savings where it is, I will not pay anything off our mortgage whilst the savings rate is higher than the mortgage rate.

But my O/H is always going on at me that he wants to pay the mortgage off and I try to tell him that our money is best where it is but will he listen!!