overpay or save and then remortgage ?

E@J'S_DAD

Hi

I have a fixed mortgage 5.99 (6.5) overall .I have a couple of years to go with the fixed.My question is this .From January 07 I am intending to overpay 500 a month.Would i be better of saving the money in a good savings account an then look at remortgaging when i have a good sum saved at the end of the fixed period (@ £14,000) or overpaying the same amount? I have another 15 years to go and no cash at the moment to pay fees etc for a remortgage.

I dont have a clue where to start with this one !!

I am going to assume the base rate stays steady (fingers crossed )
Any help greatly received
Many thanks

jamesd

You're unlikely to get as good a return on a savings account as you will get in savings by overpaying on the mortgage. The mortgage overpayments set 5.99% after tax as the target you need to beat for a savings account to be better.

Investing can be better than making the mortgage payments because you could get a better return than the mortgage rate if you have a fairly aggressive set of investments. If you choose this route, the first step is probably using the full 7000 a year limit for a stocks and shares ISA because the lack of tax there makes it necessary only to exceed 5.99% to be better off investing. Once you get beyond tax free limits you need 7.5% as a basic rate tax payer or 8.3% as a higher level tax payer to match the benefit from paying off more mortgage capital. Stock markets can be expected to do that over a long enough time period. If you'd be upset by buying shares on April 5 then having them decline in value during the recent falls, this is probably not a good choice for you.

One fairly clear answer: overpaying the mortgage is easy to do and provides a guaranteed return which is reasonable enough. Good if you like an easy life and predictability.

The way I look at it is that the mortgage will be a property part of my investment mix and the overpayment funds are better invested in the equity part, to get some diversification of investment types. So personally, I'll be going with investing aggressively for the ISA limit and then overpaying only any money I have above that.

But that is me. Your preferences and comfort levels may well be different - it's a personal decision based on your own circumstances, attitude to risk and desires. No one answer is right for everyone.