mortgage interest rate low pay some off

surfsister

Just wondering as the interest rate is so low is it a good idea to pay some off?

I'm not quite sure how it works. If the rate on the mortgage is say 3% (it's nationwide repayment) would I be better to pay some off now to save money if interest rates rise? ie save future interest rates on that amount?

any notions please?

Peelerfart

If you've got some money saved for the proverbial "rainy day" then yes.

Overpayment improves your LTV and saves a lot of money in interest over the term. Use an overpayment calculator - the figures may surprise you !.

Size66

Im lucky. i have to re fit the kitchen in my house, the cost is 10k, my mortgage is 15k ( repayment only ) on a 200k house. i currently have 30k saved in a not very high intreset account.
should i

1. pay off the mortgage and cash fund the kitchen
2. leave the mortgage as it is and cash fund the kitchen
3. re mortgage to include the cost of the kitchen ( 27k )

im employed have no debts / c cards etc. - single.

any pointers would be appreciated.

jimbo_the_jetset

Nationwide - you can overpay up to £500 a month.

Deciding to overpay depends on how much savings you have (do you have these included in your normal budget when mortgage was say 5%?), how much you are likely to get from savings (i.e. not much). Remember overpayments come straight off the capital. Use the spreadsheet in the mortgage section of this website to see what effect overpaying has on your mortgage, interest and term

Time2Go_25

If you have any CC debts or other loans at higher APRs pay them off first.

midflight

Personally I'm scrambling to get my mortgage paid off as quickly as possible now that the rates have sunk so low, as I don't believe these low rates will last forever. However, I know some people are doing just the opposite, perhaps to enjoy their lower monthly payments and enabling them to splash their extra cash on more important things like iPhones, HDTVs, pointless decking, designer clothes & other essential gear for these modern times...

Barneysmom

I'm saving like a nutter, there's maintenance on the house to do this year.

But

Barneysmom

I'm saving like a nutter, there's maintenance on the house to do this year.

But the biggest thing for me is to pay off the mortgage asap so I can relax a little bit.

surfsister

thanks all yes probably a good time to pay some off i can scarpe the cash together!

HangTime

My view is pretty simple - assess what return you can get on savings, versus how much you have to pay out on your mortgage. If there's a sizeable discrepancy (i.e. net savings return is a fair bit higher than your mortgage rate), then I wouldn't repay the mortgage. Instead, put it in savings - you can always pay off some the mortgage at a later date if rates start to rise again, although beware of overpayment limits.

Don't forget that with rates being so low, tax on savings represents a smaller cut than it used to. e.g. compare these two situations with a savings account paying 2% above base rate, to a basic rate tax payer:

Base rate 5.5%, savings account paying 7.5% (6% net) = 0.5% above base rate
Base rate 0.5%, savings account paying 2.5% (2% net) = 1.5% above base rate

So for people with tracker mortgages who've already maxed out their ISA allowance, it's arguably become a BETTER time to save than when interest rates were high, relative to paying off your mortgage.

mister_t

Peelerfart wrote: »

If you've got some money saved for the proverbial "rainy day" then yes.

Overpayment improves your LTV and saves a lot of money in interest over the term. Use an overpayment calculator - the figures may surprise you !.

Sticking the extra money in savings doesn't rule out helping your LTV. If you need to remortgage and you LTV is to low you just use the savings accrued to reduce the size of the mortgage required.

Putting it in a savings account (as long as the net rate is >= your mortgage rate) gets my vote. It gives you more flexibility in case you ever need access to it (e.g. made redundant), it still helps your LTV if you remortgage and is a more efficient use of the money. This assumes you don't touch these savings unless its an emergancy of course.