overpayments or save

scootar

Hi everyone, I've got a specific question on this and I was hoping some of you might be able to give me some advice. We're now in a position to save about 1500 a month (yes!!!). We have a 10 yr fixed mortgage at 4.89% and can make overpayments of £500 a month. We're looking to move house, maybe in 2 years time (it's fully portable), and I wanted to know whether I should make overpayments or save. We're likely to want to borrow quite a bit more (boo!) than we currently do when we move, and this will be treated as a separate mortgage. Thus, I think we'll need a deposit? This is the first issue - should this influence our decision? The second one, if we ignore the above, is whether we we would be financially better off saving the money (say if I can 1 year fixed bond at 6%) over paying down the mortgage - is it a simple calculation 1.11% better off?

Sorry this is such a tough question! However, I reckon it's probably quite important to make the right choice and this is the best place to get an informed answer, me thinks.

Cheers,

Scott

Lokolo

scootar wrote: »

Hi everyone, I've got a specific question on this and I was hoping some of you might be able to give me some advice. We're now in a position to save about 1500 a month (yes!!!). We have a 10 yr fixed mortgage at 4.89% and can make overpayments of £500 a month. We're looking to move house, maybe in 2 years time (it's fully portable), and I wanted to know whether I should make overpayments or save. We're likely to want to borrow quite a bit more (boo!) than we currently do when we move, and this will be treated as a separate mortgage. Thus, I think we'll need a deposit? This is the first issue - should this influence our decision? The second one, if we ignore the above, is whether we we would be financially better off saving the money (say if I can 1 year fixed bond at 6%) over paying down the mortgage - is it a simple calculation 1.11% better off?

Sorry this is such a tough question! However, I reckon it's probably quite important to make the right choice and this is the best place to get an informed answer, me thinks.

Cheers,

Scott

Yes, but you won't find one.

To be finanically better off you would need to find a savings account which is 6.12%, assuming you are a normal rate tax payer.

scootar

Hi Lokolo, sorry, I should have said - I am a 40% tax payer (earn around 40k if that helps) and my partner earns around 20k.

Lokolo

scootar wrote: »

Hi Lokolo, sorry, I should have said - I am a 40% tax payer (earn around 40k if that helps) and my partner earns around 20k.

You would need 6.51%.

If you choose to save you would get most interest if you were to put all savings in your wife's name.

However:

£500 a month overpayments
£1000 a month savings

Your mortgage will reduce by £12,000 extra over 2 years which is good.
Savings will be around £25k in 2 years saving £1,000 a month.

I am not sure how deposits and mortgages work so cannot help you there.

dimbo61

In a normal SAFE savings account you will not earn 4.89% never mind 6.51%
Now you could if you have a spare £1500 every month change the term of your mortgage.
How long is the term ? and can you reduce it to the length of your fix for the next 2 years?
Use "whatsthecost" to work out the figures and then contact your lender.
AS an example I reduced my term from 22 years to 10 years and my mortgage payment went up by £500 a month.
Only consider this if you can afford the higher mortgage amount EVERY MONTH!

Lokolo

BTW its not 6.something. For you its 8.12%...... doh!

northerner999

I would overpay the maximum you're allowed and use extra money to build up a rainy day / deposit fund. So long as you've got a substantial rainy day fund (I've got a year's worth of mortgage payments and still don't feel that's enough) then I would do what dimbo suggests and try and reduce the term as you can then pay more. It will save you lots on interest.

getmore4less

scootar wrote: »

Hi Lokolo, sorry, I should have said - I am a 40% tax payer (earn around 40k if that helps) and my partner earns around 20k.

40% tax starts at (£6,475+£37,400) £43875.

but you only need to wory about teh 20% rate since you can keep the cahs in your partners name.


Your problem is deciding what sort of rate you will be able to get for the extended borrowing when you move, no point overpaying now to then have to borrow it back at a higher rate later.

dragon666

Scootar


If I was you I would seriously take a look at the One Account, if you can afford to save £1000 and over pay £500 a month, with the One account you would be using the whole of this amount to go towards paying Off your mortgage but still have access to it when you need it.

Reduce the interest you pay on your mortgage
Just by paying your income and savings into the same account as your mortgage you're reducing your mortgage balance, so you only pay interest on the lower amount. This could save you a fortune over time and help cut years off your mortgage

ukclarkkent

getmore4less wrote: »

40% tax starts at (£6,475+£37,400) £43875

sorry to slightly hijack the thread but is that statement right?

i read this page - http://www.hmrc.gov.uk/rates/it.htm - and thought the table at the bottom said higher rate is over £37400. i'll keep looking but if you could confirm i'd be grateful.

cheers