Royal Bank of Scotland Tracker - Overpay or Save???

hippydip

hi there, I have just joined your forum today after having spent many evenings looking over your comments. I wondered if anyone could help, my husband and I bought our first house last October, house valued at £200k and we took a tracker mortgage with RBS for £171k. Things are great at the mo with our rate now about 1.6% with us saving about £400 pm but I know this will be a short term thing until rates go up, I was wondering if it is best to save the extra money to ease things when the rates do go up (does anyone think they will go much above 5% this year?) or should we overpay mortgage? thanks for any thoughts....

just looked at this little blue face and it looks horribly smug, i'm sooo not feeling that way as we have just taken on such a big debt at such a difficult time in the economy..

Cannon_Fodder

Have you got an emergency fund, for say 6 months expenditure, in case of job loss?
Have you got Cash ISAs? Take advantage of the tax-free status.

Overpaying helps your LTV as house prices fall.
But saving sets aside a lump you can later use against your LTV, too.

Its a close call at these levels.

Its not just about what interest you can get or avoid having to paying.

There is also the 'fees' element of re-mortgaging. Assume its a 25-year mortgage, and the effect of overpaying saves you (purely as an example, I haven't done the maths) 7 years on the term, then that is probably 2 re-mortgages and their associated fees that you will avoid. Not to be sniffed at, when perhaps £999 a time.

But, as per the first question, that saving far into the future is worthless if your finances are not great now and you jeopardise your mortgage by going into arrears through job loss.

beecher

Make sure you're disciplined enough not to dip into the savings if you do decide to save in order to ease things when interst rates rise. I'd be tempted to either overpay or to put the savings in an account which you can't touch for a year or so. You could of course do both though - save and then overpay in a few month's time.

As Cannon Fodder says, it depends on how your finances are in general, and how secure your employment is.

hippydip

thanks for the advice, we are both in stable jobs as far as we know, me in public sector and hubby in well established oil company (although never say never), we have two small children so finances are reasonably tight, however, we will be better off by a good couple of hundred pounds when youngest starts school later in the year. I also work part time so do have the option (if absoloutely necessary) to go full time if need be, I guess it's still a guessing game for many of us as to how things will go over the next year or so, maybe we should build a bigger nest just incase we do need money because of job loss then maybe consider changing deal if rates go much much higher....