Overpay or save?

lingwood

Hi

In January 2010 or mortgage rate (with the G&C) changes to their SVR which is currently 2.5%. Our mortgage is for £227K, with house value currently at £350K, with 30 years to run, we currently pay £1181, and it will drop to ~£850.

We are more than comfortable to pay £1200 per month, so in theory reducing the terms etc, but would it be better to save the money as either a rainy day fund, or see how we are at the end of the year and if still Ok, pay off (within the limits of the mortgage) an lump amount?

As for saving accounts etc, I have filled my ISA allowance for 2009/10 and will instantly fill it at the start of the 2010/11 year, but my partner has not used hers.

Thanks

begbeer

If you can get a savings account paying better interest after tax than your mortgage you are better of saving, if not pay it off your mortgagge

Mini_Bear

I agree with begbeer. Once you have a maximum of 3-6 months emergency money tied up in isas/high paying instant savings, i would throw all your ££ at the mortgage, as interest rates will rise eventually and you will want to owe as little as poss when they go up!
Good luck OP, at least with savings it gives you the option to overpay at some stage.

adampeek

Similar to the above, I have a mortgage of £62k at 2.95% with monthly repayments of c£330 a month. As of next April I will be in a position to make overpayments of £400 a month.
Having just spoken to my mortgage company, I am allowed to make unlimited overpayments but each payment must be a minimum of £2k.
Now I know I could get a higher rate of interest with an ISA etc, but would the money be better off paying off chunks of my mortgage? Does being in negative equity or shared ownership make any difference? I own 35% bought at £188,500 worth roughly £155,000 to £160,000 now.

Thanks

dimbo61

Hi adam
You own 35% and pay rent on the other 65%
How much would it cost to buy the other 65% and could you afford the mortgage on the 2 parts!
I would save into ISA,s 3/6 months of income as emergency fund and then overpay at the 2K minimum each time you have saved that amount in a high interest savings account.
Consider how much lenders would lend to you IE 4X income and work out how much of the existing mortgage you need to clear before you can borrow the money to buy the other 65% GOOD LUCK

kingkano

That really depends on your own situation. Overpaying the mortgage would appeal but remember you might not be able to access that money again in the future. so I'd make sure you have a comfortable level of savings.

ADversely, if you save the money, you can always use a lump sum to pay some off, now or even when you remortgage sometime in the future. and your confident you won't need the funds again.

ukclarkkent

i have the same question. either save it in my halifax regular saver at 5%(pre-tax) or overpay my new hsbc mortgage at 4.54%.

i can only pay a max. of 20% or each standard monthly payment so saving up and paying a lump sum isn't applicable for me for the next 4.5 yrs.

what does 5% pre-tax come out as in actual terms?

thanks for your helps.

Joe_Bloggs

@ukclarkkent
If you are a basic rate tax payer then you will pay 20% tax on interest earned. Thus a 5% rate becomes a net 4%. You can vary how much you save with that regular saver but not miss a payment.
J_B.

Thrugelmir

Joe_Bloggs wrote: »

@ukclarkkent
If you are a basic rate tax payer then you will pay 20% tax on interest earned. Thus a 5% rate becomes a net 4%. You can vary how much you save with that regular saver but not miss a payment.
J_B.

Or you need a gross rate of over 5.675% on your savings to better that than paying down the mortgage.

dimbo61

" i can only pay 20% " each month is a lot of money
So if you can afford it and have your emergency fund then a 20% overpayment each month for the next 4.5 years will have a massive effect on the mortgage balance!

ukclarkkent

dimbo61 wrote: »

" i can only pay 20% " each month is a lot of money
So if you can afford it and have your emergency fund then a 20% overpayment each month for the next 4.5 years will have a massive effect on the mortgage balance!

no i meant that 20% of my monthly payment so if i was paying £100 a month i could overpay by £20 only.