When it doesn’t pay to overpay on your mortgage

Lady_Tara

Hi, not sure if I should tag on this thread or not but I wondered if anyone can help me with a question please?

We have a £135,000 mortgage over 22 years, and are on A&L variable (+ 0.99 BOE rate), so currently at 1.49% We can afford to overpay £500 per month at present, but I’m not sure if its best to overpay, or to save this £500 somewhere else, then knock off the mortgage when that rate increases? We have savings for emergencies spread in some other accounts which would cover us both for six months out of work.

Any advice anyone can offer gratefully received, thanks. Apols if I have tagged onto the wrong place, let me know and I will move post (if I can find out how!)

StuartGMC

Tara
Briefly you need to consider your LTV in terms of what you need to have as equity in the home in order to move mortgages is you ever choose to do so/your present term ends. This may influence your decision somewhat.

Do you also have savings for the planned (non-emergency) costs you know you'll face such as holiday, replacing the car, fridge etc plus are you also contributing to your pensions?

Then it is all above reading the comments previously in this thread wrt interest rates, savings, a desire to owe less or a knowledge that once money is in mortgage you can't "waste it" if having it saved may lead you down that path....

Lady_Tara

StuartGMC

Thanks, yes we have got savings also to cover holidays, car renewal, kids driving lessons etc and are both in blue chip company pension schemes.

LTV - house is worth around £250k and current mortgage is £135k, recently come off a fixed rate and gone down to boe tracker which was a nice surprise!

I don't think we'd "waste" it if we saved instead of paying off mortgage, just not that hot on juggling figures to work out if its better to overpay at the moment, or save then pay off lump sum when mortgage rate starts to rise?! We can overpay 10% per year without penalty, so will be well under that amount...
Thanks