Overpay mortgage or keep in savings ?

swayzak

Yes, thanks also - although I don't entirely understand it (maybe I'll have to read it through a few times !), the conclusion is clear.

swayzak

Jonbvn

Ingsy wrote: »

This is something I'm interested in, as I'm looking to either overpay or save next year, depending on which is best. My mortgage is much bigger than my savings, so I figure it would be better to pay down, than save, so if this could be explained I'd be much appreciated

To decide which is best, just compare your mortgage APR vs. the net (after tax) AER on savings. If you use ISA's to save (normally a good idea), then tax can be ignored.

If mtg APR > net savings AER - Overpay.
If mtg APR < net savings AER - Save.

kipwilliams

to the OP - in your circumstances I think you need to strike a balance here.

You save around £1000/month and can only overpay the mortgage until April, so this arrangement is for 4-5 months. Assuming it's end of April and you can put £1000 in and keep it there for full calendar months you would earn £31.50 in interest. If you pay the amount off of your mortgage you will save £11.25 in interest. Therefore you will be £20.25 better off.

For every full month you have £1000 in that top rate savings account you are £1.35 better off per £1000. I'd suggest you'd probably only be able to make the full payment/month four times between now and April so you are likely to be closer to £15 better off.

Personally I wouldn't bother - but obviously it's up to you how much time and effort you want to put in to earning the interest.

Now if you already had 10k in savings or could pay money off of your mortgage at any time then it's a completely different matter......

The rule still applies that if you can get more from savings than your mortgage interest rate you will be better off saving, but I just thought I'd add some perspective to your situation.

Kip

Reaper

A purely personal opnion follows...

I am highly debt adverse, I hate the idea of it and I paid off my mortgage as fast as I could.

The thing is savings accounts can be moved quickly and easily. Mortgages are difficult and expensive to move. Assuming your mortgage is variable rate after April you will be at the mercy of the bank. If mortgage interest rates rise you are stuck with it (or will incur fees to move it).

If you could pay off the mortgage whenever you wanted the case to put the money in savings is clear cut, but as you only have until April if it were me I would pay off as much as possible before then.

However that is just me. I just like to minimise debt where the lender can change the rates whenever they feel like so I know where I'm at.