Help – Overpay or keep saving?

tinkerbelluk

Hi,

I’m looking for some advice but it may appear to be quite obvious when I write it all down.

Currently we have £25k in a savings account paying (I’ve just found out) 1.5% AER. :eek:

We’ve got a rate of 5.44% on our mortgage fixed until 2012. My question is my mortgage company would charge me 3% to overpay anything other than £500 a month but surely I’d be better off taking the hit and overpaying the full £25k and swallowing the overpayment charge of £750 rather than having practically no interest on the savings wouldn’t I?

Any help gratefully appreciated.

Welshlassie

tinkerbelluk wrote: »

Hi,

I’m looking for some advice but it may appear to be quite obvious when I write it all down.

Currently we have £25k in a savings account paying (I’ve just found out) 1.5% AER. :eek:

We’ve got a rate of 5.44% on our mortgage fixed until 2012. My question is my mortgage company would charge me 3% to overpay anything other than £500 a month but surely I’d be better off taking the hit and overpaying the full £25k and swallowing the overpayment charge of £750 rather than having practically no interest on the savings wouldn’t I?

Any help gratefully appreciated.

Are these savings your emergency fund, do you have additional savings?
If you were to pay these off the mortgage would you be able to get them back? and if so how quickly? it is recommended that you should have 3-6-9 months worth of emergency savings available (depending on the stablity of your jobs).

Have you filled your ISA's? If you still want to OP then you would be better off putting it into the mortgage and taking the hit.

tinkerbelluk

Thanks Welshlassie - No this money is on top of my emergency money. I've just got that in a normal savings account also and funny enough I'm just reading about ISAs now.

I think the problem I've got is I have a fair amount of savings and I know it's not working hard enough for me. So I'm thinking of moving as much of it around as possible to gain maximum benefit. But and it's a big but, I'm pregnant and haven't been with my employer long so I'll only get Mat allowance so I need to make sure we also start saving more to cover me (or the mortgage payments) when I'm off on mat leave.

I'm thinking of posting an SOA of what I've got where and the interest rates etc. do you think that will be the best idea? Also is this the right place to do it as we're keen to get our mortgage down as well.

Sorry for the long reply, I'm just getting really confused by it all!

Welshlassie

tinkerbelluk wrote: »

Thanks Welshlassie - No this money is on top of my emergency money. I've just got that in a normal savings account also and funny enough I'm just reading about ISAs now.

I think the problem I've got is I have a fair amount of savings and I know it's not working hard enough for me. So I'm thinking of moving as much of it around as possible to gain maximum benefit. But and it's a big but, I'm pregnant and haven't been with my employer long so I'll only get Mat allowance so I need to make sure we also start saving more to cover me (or the mortgage payments) when I'm off on mat leave.

I'm thinking of posting an SOA of what I've got where and the interest rates etc. do you think that will be the best idea? Also is this the right place to do it as we're keen to get our mortgage down as well.

Sorry for the long reply, I'm just getting really confused by it all!

In that case Welsome to the world of MFW.

You can post your SOA here if you want, DFW are the best for picking areas to save, but we have our moments as well.

Congratulations on the baby, how long have you got? When I was pregnant I used extra money I could gather to put towards buying anything for the baby, cots, pushchair etc. I also made sure we had any shortfall available in savings that I was predicting to have while on Maternity Leave.

As your mortgage rate is above what you ae likely to be able to get in a savings account, you have 2 choices, you could either lump it off in one go and pay the ERC or find a high interest account (with instant access and OP £500 per month drip feeding it in). I'd probably be inclined to lump it off in one go.

Have a play with one of the OP Calculators I like the Egg one There are also several spreadhseet floating around this board (StuartGMC has a good one) that can help with budgeting that you may find of use.

Good luck.

ailuro2

I would grudge paying 3% to overpay my mortgage -

that's reducing the 'real' interest rate you are making on it to less than 3%

I'd overpay the maximum amount without penalty, and find a fixed savings bond for a year to put the rest in.

Have a read of Martin's advice on this.

http://www.moneysavingexpert.com/savings/savings-accounts-best-interest

Wookey

Around 6k into a instant access savings account and use it to overpay on the mortgage each month (will give you 1 years overpayments), rest into ISA or fixed term bonds. 6k into a 1 year fixed rate ISA bond will in one year give you the full next year of overpayments.

Play with the calculators to though and see if taking a £750 hit for a one of in overpayments would save you anything, without knowing how much you owe on your mortgage and how long is left its difficult to be exact with any help.

tinkerbelluk

Welshlassie - I'm due in July so we're already saving like mad to cover the shortfall but the money we've got saved is just stagnating there.

Right back to the dilemma, I did some calculations yesterday and even drip feeding it in at 500 a month we'd be well over £750 worse off in interest paid v's interest earn on the savings.

I'm still unsure about the benefits of putting it into a fixed bond, the best rate I can find is around 4.65% which is lower than my mortgage rate.
It may be easier if I gave some figures so here goes:

Original mortgage - £145k over 25 years (currently 2 years in)
Rate 5.44% fixed until 2012
£25k saved (on top of emergency savings)

spandles

My opinion is that the new ISA tax year will be here soon and the banks (may) have some better offers on to entice us with our money. I would hang fire for a few months to see what happens with interest rates as well -they could go up as quickly as they went down. Also bear in mind how secure are your jobs - you may not have a job to go back to after mat leave!!!!!!!!!.

Any good news out there????????????????????