To Save or to Overpay on Mortgage?????

thenap80

Hi.
Can someone please advise whether, given the following, would it be better for me to overpay my mortgage or put into a savings account/ISA etc. (if so which one?)

My mortgage is 5.72% fixed until 02/06/11
I have savings of about £8000

Would it be better to put this 8k in an ISA or whatnot or overpay???

All help appreciated!!!

Barry

Lokolo

Put £3600 in an Cash ISA that pays more than 5.72% interest.

Then use the rest to pay more off mortgage (as long as there are no penalties for overpaying of course).

ian-d

Sorry to jump on this thread, hope thenap80 doesn't mind? I have savings with a number of banks to stay below the 35k recommended limited. The average interest is probably around 5% (net). Would it be worth carrying out an overpayment from these savings to my mortgage of approx. £250 - £500 per month? Would that be beneficial in the long term?

Lokolo

Depends. What interest rate are you paying on your mortgage?

It is very wise to overpay mortgage unless there are downfalls. Sometimes mortgage provider will put charges on if you overpay too much or something, which means you lose out more than anything.

thenap80

Okay...as well as the £8000 that I said I have in savings.....I also have £12000 also in a Nationwide ISA. (which I haven't paid into yet this financial year).

I have noticed better ISA deals about, in particular Alliance and Leicester (6.56%). How do I satnd if I want to put my 12K in that ISA and then add another £3600 for this year? Is that allowed or do I have to leave the 12K where it is because it would be seen as putting 12k into the Alliance and Leicester ISA (not just a simple transfer).

Okay...so with what I have left over (assuming the above is okay to do), would I benefit from putting into a savings account. I do not understand all the AER and gross malarchy. Is there a deal out there that would outweigh the benefit of overpaying on my 5.72% mortgage.

Many Thanks for the prompt replies!!

Barry

Lokolo

Are you a higher tax payer or lower or none at all?

You can open a new ISA, put the £3600 in for this tax year and transfer the £12k over, as long as the ISA allows transfers in, you must check with the provider (the bank). If they allow transfers you must ask the bank (the new one) for an ISA transfer form, you fill in the details, hopefully 4 weeks later the balance will be £15.6k.

thenap80

When u ask am I a high or low rate tax payer...do u refer to how much I earn a year as salary or how much I would put into the account? I am not knowledgeable in this finance field! I pay 20% tax as I earn <£35,000/year.

Thankyou for ur help.
Barry

Lokolo

Yes, thats what I meant.

If you want to put the other money in a savings account you will need to find someone paying a rate of more than 7.2%.

7.2% gross, - 20% interest tax gives a rate of 5.72%. So any savings accounts (outside ISA) would need at least the 7.2% rate for it to be worthwhile.

thenap80

I understand now! I don't think it would be likely to find a savings account with such a high rate. Or am I wrong?

I may just use the excess money to overpay on my mortgage!

Thanks again!
Barry

Lokolo

Yes its very hard to find savings that big.

But obviously it won't be pretty lame if you overpay and they whack a charge on, so just make sure you read the T&Cs of your mortgage, or if unsure, go into the BS or wherever you got it and ask them.

thenap80

I am trying to find a ISA that allows transfers in! The Post Office at rate of 6.00% allows this.

they are not an actual bank though are they? Are they still a good choice or would it be more wise to just go for a 6.25% with Barclays and leave the 12K in Nationwide where it is at moment?

Whats do you think? Is there any math that would give me a better answer?

Plus, does the interested get calculated throughout the year and then added at end of March or does the interest depend solely on how much is in the ISA at end of March?!

Ta
Barry