Save for re-mortgage vs over-payments?

Eternalbeau

Hi,

I'm new to this site so apologies if this question has already been done to death!

I am 18 months into a 5 year fixed rate repayment mortgage with Nationwide. I will probably re-mortgage at the end of this fixed rate period.

I am able to make overpayments each month and could afford to put £150 per month in. My question is, am I better off saving the money for the next 3 and a half years for a lump sum to reduce the amount I re-mortgage or shall I make overpayments now instead? It doesn't seem worth making overpayments if I am only paying off a third of the capital or am I missing something here?

Thanks in advance.

JonnyBravo

Make overpayments as soon as possible as then it starts to save interest from that point.
You seem confused as to why you are paying mainly interest at the moment on your mortgage.
The amount of interest you are paying is due to the amount you owe, it is nothing to do with how far into the mortgage you are (other than as you go through a mortgage you should of course owe less and therefore pay less interest).

Nationwide let you overpay £500 a month without penaties (I think on all their mortgages?) so your £150 a month is well within its limits. Check this first just in case.

Dithering_Dad

If you can get better interest rates in a bank account than your mortgage rates, then it's better to save, otherwise make overpayments. I would imagine that with having a mortgage rate that was fixed 18 months ago, you will have looked with dismay at the current low BoE rates and it might be more cost effective to overpay.

The only other consideration is whether you think you will need the overpayments in an emergency. A lot of mortgage providers allow you to get back your overpayments with just a small admin/handling charge, others will force you to remortgage to get the money back. No one can forsee the future, so it's better to cover yourself for all eventualities, and if you lost your job you might regret tying your money away in overpayments.

I've made direct overpayments but I know that if the worst happens, I can get the money back. Contact your provider to find out.

Which ever you choose, you can't really go wrong - better to do overpayments or save up than to blow your money on consumer items!