Saving v Mortgage

Inforapennyinforapound

After a while of reading so much financial advice one's mind goes a bit numb and easy decisions sometimes take a while to understand...

So, at the moment i have a few hundred pounds available each month..what to do with it?

1. Put it in an ISA? (none of which are any good)

2. Make lump sum payments off the mortgage?(current rate i am paying is 3.19% which is discounted for a few more years).

The reason for my confusion is that i would think it better to pay off mortgage when rates are high(but then so are savings rates!)

Thanks in advance for suggestions

Lokolo

Ok yes, its best to pay off mortgage when its higher because per £ it costs more. But at the moment, with rates low, you could most probably afford to pay more off per month as currently you are paying lower than normal monthly.

A lot of people have this dilemna, mortgage or save.

What I always say is, why don't you do both? Half and half it, save half, put half towards mortgage.

Do you have any overpayment charges on mortgage? This could work out more expensive than saving.

Money_Grabber13579

In my opinion, I'd definitely pay off the mortgage (although keep a bit in savings for the unexpected - ideally, it's good to have enough cash in savings to keep you going for 3 months)

Mortgage rates will always be higher than savings rates, and although yours is discounted now, it will shot up in the future, so if you get it reduced now, then that's less interest to pay in the future! While you could save it now in a 3.6% interest account, the additional 0.5% wouldn't be very much, as you'd probably have tax to pay as well on the interest. Hence I feel it'd just be more hassle than it is worth in the current low interest rate climate.

DiggerUK

Info'pound,

I'm with M'G13579, make hay whilst the sun shines, interest rates can only go up at some point.

Planning for long term savings when you have debt always seemed "back to front" in our house.

By a reverse process of receiving interest you will get a better return paying down your mortgage.

Trust me, when your mortgage is gone life changes.

Good fortune.

baby_boomer

The Financial Services Compensation Scheme will be levying banks and building societies over the next few years in order to pay off the government for bailing out the Icelandic banks, Bradford & Bingley, Dunfermline BS etc. etc. (and can we be so sure that there won't be others?)

Both banks and building societies will also be seeking to rebuild their capital base to protect against possible future financial shocks (this will be achieved via extra profits).

So mortgage rates will inevitably be higher and savings rates will inevitably be lower as a consequence.

So pay off the mortgage and you give them less chance to rip you off .

Inforapennyinforapound

Thanks to all above posters.

I tend to agree that the mortgage should take preference.Its just reassurance that others think the same way....Saving money now may as well be under the mattress!!........

Unless YOU know different

Jonbvn

Money_Grabber13579 wrote: »

Mortgage rates will always be higher than savings rates, and although yours in discounted now.

This is not always true. Our lifetime tracker mortgage is currently 1.29%. Even accounting for tax, it is easy to find a savings account paying more than this.

Money_Grabber13579

Jonbvn wrote: »

This is not always true. Our lifetime tracker mortgage is currently 1.29%. Even accounting for tax, it is easy to find a savings account paying more than this.

That must be a very rare exception! Most banks will put a collar on the rate so this doesn't happen! I'd hardly think that this is open to new customers!

baby_boomer

Jonbvn wrote: »

Our lifetime tracker mortgage is currently 1.29%..

Bully for you and I'm green with envy, but

how is this relevant to the OP's question?

Jonbvn

Money_Grabber13579 wrote: »

That must be a very rare exception! Most banks will put a collar on the rate so this doesn't happen! I'd hardly think that this is open to new customers!

If you look back at posts when BoE starting slashing rates you will see that a lot of people on MSE were in a similar position with tracker mortgages. I would not say it is very rare. IIRC HBOS actually removed their collar.

You are correct that such deals are no longer open to new customers. However, I do not see that this is relevant to the discussion.

BTW, in our case it would financial madness to overpay the mortgage rather than save.

Jonbvn

baby_boomer wrote: »

Bully for you and I'm green with envy, but

how is this relevant to the OP's question?

Eh

I was responding to the poster who said mortgage rates are always higher than savings rates????