Continue to overpay or start to save?

spire2009

My Wife & I are both in our early 30's.

In 2007, we took out a £170K mortgage (LTV 60%) over 18yrs, fixed for 10yrs at 5.63%. Every year, we've made the maximum amount of overpayments (10% of balance) and also reduced the term down to 12 years.

By Sept 09, our mortgage balance will be circa £123,500 and we intend to reduce the term down further to 8 years resulting in a monthly payment of circa £1,600.

We have no other debts and limited savings, £5k.

My question is, despite reducing the term down to its lowest possible under our existing agreement, should we continue to make overpayments or is now the time to making the most of our annual ISA allowances etc?

I look forward to hearing your views.

magictom123

Savings arent generating interest at the mo (well, not a lot) and if you overpay you are saving on years of mortgage payments and its associated interest which you currently pay at a high-ish rate.

If I were you, if your sure you could maintain overpayments (risks of unemployment etc) then I would continue to overpay until savings interest rates pick up. A lot of mortgage providers allow you to underpay by the amount you have overpayed so even if income from a job was an issue in the future you still have that safeguard (assuming your mortgage provider allows it of course).

Maybe, if you are planning to save for anything special, you could reduce the overpayments by 50% and pay the other 50% of the overpayment into a savings account so that you can 'get your hands on it' if need be.

Thats just my opinion anyway, hope it helps

Lottebear

Do you both have penison, if not it maybe worth starting? Instead of overpaying?

sss555s

Everyone has their own view on this.

For me i fixed the remainder of my mortgage over 5 years and fill my cash ISA instead of overpaying my mortgage.

You can't get back the tax free years that your missing out on and in time i expect the rates will rise.

Also it's nice to have some cash behind you in case anything unforeseen happens, if you've put all your cash in your mortgage you have nothing to fall back on.

So i'd say fill your ISA's then overpay with any remainder and i expect S&S ISA's are far more attractive now than they were though i haven't had any.

spire2009

Thanks for the replies.

As we haven't got any pension provision to date, I was thinking about putting £600 a month away in a CASH ISA and what's left going towards overpayments.

THRIFTY_GIRL

spire2009 wrote: »

Thanks for the replies.

As we haven't got any pension provision to date, I was thinking about putting £600 a month away in a CASH ISA and what's left going towards overpayments.

Have you considered remortgaging/offset? It is worth doing the sums as your current fixed rate is quite high and there are some good deals still available (eg First Direct). This way you are saving interest and accumulating a rainy day fund.

However, as mentioned the tax free status of ISAs is lost if you don't use it so its give up the tax free benefit or a small amount of interest...:money:

dimbo61

First of all WELL DONE on clearing £46500 off the mortgage in only 2 years.
I am sure that you will have a big ERC to pay if you wanted to move lender and get a better deal.
I would increase your savings as £5k is not even a months income for you both ?
Try to build up 6 months of income in Regular savers
Barclays 6% ( £250 a month ) or HSBC 8%( £250 a month but you need to bank with them).
Consider cash ISA,s but they are only paying about 3% at the moment.
Keep up the good work on the MF journey.