How much savings vs putting into mortgage

adzza

Hi from Australia.

Im fairly new to this game, and being only 26 have a lot to learn about the world. However, my wife and I bought a place about 5 months ago and have been making extra repayments from day one. Currently we have cut our mortgage from 26 years to 20 years by only adding an extra $70 a fortnight to our base payments.

We can do better! A lot better. Both my wife and I have very good paying jobs and am going to put at least $640 a month extra to begin with, and we will increase it from their.

My main question is this. We currently have about a 1.5 years worth of mortgage payments put aside in a savings account for that rainy day. Is this even worth doing, or should I just move this onot the mortgage and redraw if I ever get into trouble???

We do want to make some changes/renovations to the house also and its tricky to jugle this, plus repayments, plus savings at the same time.

Any advice welcome.

Cheers.

alfiesmum

We have a 6 month emergency fund (equal to 6 months of our usual income) saved up and put aside, and everything over that goes directly to overpay the mortgage. There's some great advice from others on here, if you have a trawl through some of the other threads.
It also depends upon what your interest rates are on both the mortgage and the savings. Hopefully someone a bit cleverer than me will be along in a bit, and they'll explain it properly for you!

alfiesmum
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GSXRCarlos

Hi adzza,

I'm new to the mortgage game (at 25) too, all i can offer is based on my experiences of Uk mortgages, here goes:

Mortgages here allow an overpayment of 10% without penalty, make sure you check your mortgage and do not exceed that figure.

My mortgage works like an offset mortgage and it allows me to pay extra, and withdraw money again if necessary, check how your mortgage works to be sure, otherwise you may find you've paid a load off your mortgage, but you can't access it when you might really need it.

As said above, depending on your circumstances (ie prospect of redundancy, sickness etc) get some money saved up "just in case", then anything over that can be payed off your mortgage, if you can access the money from your mortgage easily, i suggest paying it off your mortgage.

in my situation, if i pay more off my mortgage it's like getting interest on savings at 6% (as this is the fixed rate of my mortgage) compared to my actual savings accounts which are basically returning 0%

does that make sense?

Pee

I think you want some emergency savings. 18 months of mortgage payments or 6 months salary - probably fairly similiar figures. I have to say my emergency savings are less than that, but 6 months is the aim.

setmefree2

Most posters on this board seem to believe that you should have between 3 to 6 months of your monthly salary in emergency savings.

By the way, a big

to the MFW board

Let us know how your MF journey goes.

StuartGMC

Emergency funds, then add to this the scheduled sums needed for known items you have to save for or are predicting are needed (replacement car, replacement fridge, your holiday etc etc). Then ensure you have pension in place too, plus you may want to think about any changes likely in future which may impact income if you have children etc.

I would recommend considering a degree of investment on top, but in the early years I think you are best to focus on the above and the OP. I think offsets started in Australia so think about future mortgage options too.

Good luck.

george_jetson

StuartGMC wrote: »

I think offsets started in Australia so think about future mortgage options too.
Good luck.

Mr GMC beat me to it!

I think offsets were originally called "Australian mortgages" over here and if you have one of those, the problem of how much to stash away for a rainy day fund just melts away.Your money's there if you need it, and until then it's merrily driving down your monthly interest bill!

Jonbvn

GSXRCarlos wrote: »

Mortgages here allow an overpayment of 10% without penalty, make sure you check your mortgage and do not exceed that figure.

The above statement is misleading. The amount you can overpay without penalty varies between each different mortgage and lender. As an example, I've had a FR mortgage which allowed 20% (of the std monthly payment) as an overpayment, and a tracker mortgage which allowed unlimited penalty free overpayments.

Checks your T&C's and/or with your lender before making overpayments.

GSXRCarlos

Jonbvn wrote: »

The above statement is misleading. The amount you can overpay without penalty varies between each different mortgage and lender. As an example, I've had a FR mortgage which allowed 20% (of the std monthly payment) as an overpayment, and a tracker mortgage which allowed unlimited penalty free overpayments.

Checks your T&C's and/or with your lender before making overpayments.

Appologies,

Didn't mean to mislead anyone, that was just my understanding, is 10% a minimum?

rozzy_2

GSXRCarlos wrote: »

Appologies,

Didn't mean to mislead anyone, that was just my understanding, is 10% a minimum?

No, it is the maximum but only for particular lenders. Various lenders have different policies on overpayments hence the advice just to read the T&C's. Some have 10% maximum OP, some are unlimited etc.

DVardysShadow

adzza wrote: »

.... We can do better! A lot better. Both my wife and I have very good paying jobs and am going to put at least $640 a month extra to begin with, and we will increase it from their.

My main question is this. We currently have about a 1.5 years worth of mortgage payments put aside in a savings account for that rainy day. Is this even worth doing, or should I just move this onot the mortgage and redraw if I ever get into trouble???

OK, you have an emergency cushion, which should deal with most things which arise - or at least give you plenty of time to arrange to deal with really serious situations. So, overpay or save? Simple, go for the highest rate. If you can save at a higher rate than the mortgage, keep the mortgage forever, otherwise pay it off.