Continue to overpay or start to save?
spire2009
Forumite 10 Posts
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.
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.
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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
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.
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:
Start balance: £205,746.51 :eek: Month 18/100..paid 13.50%
Current balance: £177,977.07 (updated 18.12.10)
Target 12.12.12: From £194,000 to £140,000:p
MFI-3 reductions: £16,023/£54,000 achieved (29.67%):j
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.