Different approach

I read recently that overpaying on a mortgage when the interest rate is rockbottom (ie with some tracker mortgages) means that you are giving money away to the lender effectively.

My husband has suggested that rather than continue to overpay on our Woolwich tracker mortgage (interest rate is currently 0.68% or thereabouts) we save money in the highest interest account we can find.

This goes against my gut reaction but seems the most sensible approach.

I suppose I like the feeling of the mortgage being chipped away at.

Am I letting my heart rule my head?

Patchy

Replies

  • Yes you are.

    Your husbands logic is sound.
  • The "maths" are as Jonny says, correct that the best interest rate (when your tax position is considered for non-ISA funds) is the best place for the money.

    However there are a few considerations:
    1) If you build a significant savings pot then hit redundancy you may be unable to access means tested benefits; you can't drop your savings into the mortgage as that is a deliberate reduction in assets, and you may have to "eat into" the savings. This would not be the case if you had simply overpaid throughout.

    2) Are you disciplined to not touch the monies in savings which you would have put into the mortgage? If so, then the maths points to the logical step to take if (1) is not a concern.

    3) The above assumes you have your pension, emergency funds and savings needs all budgeted for anyway?
  • I read recently that overpaying on a mortgage when the interest rate is rockbottom (ie with some tracker mortgages) means that you are giving money away to the lender effectively.

    My husband has suggested that rather than continue to overpay on our Woolwich tracker mortgage (interest rate is currently 0.68% or thereabouts) we save money in the highest interest account we can find.

    This goes against my gut reaction but seems the most sensible approach.

    I suppose I like the feeling of the mortgage being chipped away at.

    Am I letting my heart rule my head?

    Patchy
    I've currently moved onto a mortgage holiday to push the mortgage up - basically clawing back the overpayments.... I can't see trackers so low with no floor limit (I'm sub 1%) ever being available for a long time and I also can't see base rate rising too steeply or that high (so many more would be in trouble before us there would be intervention) and I'd rather port as much as possible as I know we'll want to upgrade out FTBer choice at some point.... althought the rate isn't great - for tax purposes the 'mortgage' is now going in offset... odd times we live in
  • dimbo61dimbo61 Forumite
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    With a mortgage rate that low you should be puttine money into ISA,s allowed £3600 each ( cash !) and £5100 from next april.
    Getting the best return on your money is whats important.
    Also consider regular savers HSBC,barclays and now Halifax offering 8!!!% 6% and 5% before TAX
    When mortgage rates rise you just pay a lump sum off the mortgage.
    GOOD LUCK
  • donglemousedonglemouse Forumite
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    don't consider the 8% HSBC regular saver - that's not the real rate after you take into account fees you need to pay

    on the main point, i have an offset mortgage and have the money sitting elsewhere in higher interest rate accounts than the mortgage which is base + 0.5% for me

    depending on your tax status you may find you will get better rates with accounts that aren't isa's e.g. lloyds classic with vantage which has instant access
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