Additional payments or savings?

Llyllyll

The introductory period for my mortgage is ending in May. If my current provider does not offer another good deal I'll be switching (have already downloaded Martin's remortgaging guide). Last time I remortgaged I managed to cut 3 years off the term of the loan and intend to do much the same this time. Should I also put any lump sums I have (from various high interest savings) towards the mortgage to reduce it further or keep these going?

Also does it make any difference if I:

1. Work out what I can afford to pay each month and lessen the term accordingly.
2. Go for an easily affordable set monthly payment, and then make overpayments on that.

Thanks for any advice.

MortgageGenie

Hi

It's wise to always keep some savings readily available in the event of an emergency. After that, you need to work out if the remainder of your savings are generating a higher return than you're paying on your mortgage and whether you need access to them if the future. If your savings are not in an ISA you need to take into account that the gross rate quoted on your savings are subject to 20% tax at source. (more if you're a higher rate tax payer)

Regarding the 2 approaches, it's very subjective as there are pros and cons with both. Individual characteristics will play a role in which approach is best for you. If you adopt the approach of working out how much you can afford and adjust the mortgage term accordingly be careful not to over commit as it can be difficult to get the lender to reduce your payments if you hit hard times.

As long as your mortgage allows monthly overpayments which immediately reduce the capital balance, then provided you maintain the overpayments, the second option should give you the same result with the added advantage that you can stop the overpayments if you hit hard times.

My personal preference is option 2.