Overpayment - is it worth it

geordieracer

Sorry if there is a thread on it but i currently have a 71K left on my mortgage and my payments are about £370 a month which is not a lot out of me wages.

Now, i have a few thousand in savings and was thinking that as the interest rates are so low it would be better for me to use this to pay down the initial loan amount so that when rates inevitably go up again i wont owe so much so the rates would not affext my monthly payments too much - I.E wont go up to much.

Is this correct and is this the right thting to do?

thanks in advance

Let_Us_See

Reducing your mortgage borrowing is always a good step, especially if your mortgage interest rate is higher than received for your savings. Just remember to keep a little back as an emergency fund.

Peelerfart

If you're getting a better interest rate from your savings, than you are paying on your mortgage then keep your savings.

Otherwise, providing you can overpay without incurring any charges and as the above says you have an emergency fund then OP by all means.

Be warned though overpaying can be addictive !

redb_2

Need more info from the OP as to what mortgage rate you pay, what is your tax rate, have you used up your ISAs and what interest rate you are getting.

Yes, overpaying is a generally a good idea. However, in my case my mortgage rate is 0.99% with FD and they are offering 3% cash ISA - so I am not overpaying !

blueberrypie

redb wrote: »

Yes, overpaying is a generally a good idea. However, in my case my mortgage rate is 0.99% with FD and they are offering 3% cash ISA - so I am not overpaying !

I'm in a similar situation, in that my mortgage rate is lower than the interest (after tax) that I'm getting through savings - but I am still overpaying, because my mortgage has an annual limit on overpayments - 10% of the original amount borrowed. If I don't use the 10% up this year, the allowance doesn't carry over to next year. So it makes sense to overpay by that 10% anyway - the interest saved on the amount overpaid will reduce the interest payable every year until my mortgage ends.

It's a bit like an ISA in reverse, if you like - compound interest increasing the amount saved in an ISA, compound interest reducing the amount owing on my mortgage :-)

Let_Us_See

BBP, that is a new one to me. Who is your lender?

dimbo61

Hi GR
If you are allowed to overpay each month then set up a Direct debit and overpay each month.
If you have a limit SAY 10% a year then consider paying off 10% from your savings before xmas !!!
As long as you still have an emergency fund of 3/6 months of income.

kriss_boy

I overpay so I dont end up hastily wasting money. It would be wiser to have extra money in the back but Im not convinced I wouldnt touch it!

geordieracer

redb wrote: »

Need more info from the OP as to what mortgage rate you pay, what is your tax rate, have you used up your ISAs and what interest rate you are getting.

Yes, overpaying is a generally a good idea. However, in my case my mortgage rate is 0.99% with FD and they are offering 3% cash ISA - so I am not overpaying !

Roughly I Think my rate at the moment is about 2.4%. I have got as much as i am allowed in an ISA and this is just extra savings that i would be using. I think i can overpay about £2.5K a year and i can afford that this year with some left over for a rainy day..

Im a normal rate taxpayer

blueberrypie

Let_Us_See wrote: »

BBP, that is a new one to me. Who is your lender?

Woolwich - but which bit is a new one on you?