Pay off mortgage or transfer to savings

Hoggle

We currently have a mortgage with Newcastle Building Society of £116k, offset by savings of £78k (so the net balance is £38k). Interest rate is 0.5% over BBR, so our current pay rate is 1%. We can make penalty free overpayments on this mortgage. We also have the facility to drawn down a further £80k on the same terms.

Given the exceptionally low interest rates at the moment, we were considering transferring the 78k savings to a separate savings account - if we opted for one of the current best buy instant access accounts, it looks like we could earn about 3% (we have already used up all our ISA allowances).

Am I correct in thinking it's a bit of a "no-brainer" - we'd be earning more on our savings than we are currently paying for our mortgage debt (even once you've taken the tax into consideration - we are both basic rate payers) so it's definitely worth doing? This being the case, then I guess we'd also be wise to drawn down the further £80k and stick this into the same savings account?

Any advice would be appreciated - many thanks!

temba

I don't know... but be careful to do the maths... I did and figured that I'd be better off closing my ISA and paying it off my mortgage, and I've got to say that it felt REALLY good to do it. Much more satisfying than moving an ISA around for an extra £100 interest a year.

I think if you are really on the ball you could probably earn a little more in a savings account, but you'd need to keep an eye on it and move it round every few months to keep up with the best rates. Of course it also depends on the interest you are paying on your mortgage.

temba

Oh... I just saw that you are only paying 1% interest, (I'm paying 3%) so I guess you are right... it's a no brainer. But... you still need to keep an eye on the savings rates v the mortgage rates.