mortgage vs savings - advice sought...

dannybird

Hi, I have a nationwide mortgage that is currently at 2.5% - I'm overpaying it by a faair bit at the moment but ive been debating for a while whether to put a substantial amount towards it - about 1/3 of my savings which would take of roughly 1/3 of the remaining mortgage.

At the moment and for the next few years (as i have a contract for that length of time) i'll be able to continue to repay at the current level, after that who knows.

This site reccomends that at 2.5% mortgage rate youd need to earn 4.2% to compete - Ive opened a 4% scottish widows account which is as good as. I'm just thinking (without a good maths head) to work out what kind of advantage the extra money off the capital would take more of the mortgage more quickly if the repayments remain the same. Ie would the interest rate need to be much higher to compete with doing things this way?

confused? I am. Its a good problem to have but im just being cautious as my ability to save at this level as come to an end and i may need substantial savings to set up a business in the next year or two.

To complicate things further I have spoke to a few financial advisers and also considered buying other property. I feel like i've worked very hard to save this money and want to make sure it works for me! I realise no one can tell me what to do as such but for those more financially minded do you think paying off such a large part of the mortgage in these circumstances is the best thing to do?

Thanks in advance....

HarrowArrow

4.2% savings you need to achieve is net; if you are filling in your tax forms properly, HM govt takes 20% or 40% off that interest depending on whether you are a higher-rate taxpayer. No such robbery with mortgage interest.

dimbo61

So even at 2.5% you will struggle to get a savings rate after tax that matches that.
If you are only using 1/3 of your savings and still have a good emergency fund then paying down a large part of your mortgage ( If No ERC) would be a good idea.
The 2.5% is the SVR ? so could go up at any time !

dannybird

thanks - that helps give me the push! i guess the knowledge that rates are likely to go up is why ive hesitated so far - having a decent emergency fund helps to ease the strain... whats ERC? ah early repayment?..no, theres no restriction - i'll double check though. I think I can take the money back out from nationwide too as far as I can make out,

thanks again for the speedy replies.

northerner999

If you can make the repayment and still have a solid backup fund, then I'd always do that.

getmore4less

dannybird wrote: »

Hi, I have a nationwide mortgage that is currently at 2.5% - I'm overpaying it by a faair bit at the moment but ive been debating for a while whether to put a substantial amount towards it - about 1/3 of my savings which would take of roughly 1/3 of the remaining mortgage.

So your savings match the mortgage, you are net mortgage free.

Time to start looking at other investments, get those ISAs filled for life time(for now) tax free savings..

With a mortgage at 2.5% it is possible to get savings rates for some of the money, regular savers are available at 4.5% and ISA over 2.5%
2.500% for cash ISA
3.125% for a 20% taxpayer.
4.167% for a 40% taxpayer.

If rates move against you you can overpay.

dannybird

net mortgage free I guess!...thats one way to look at it....Ive always filled my cash ISA allococation although i believe its going up in april so i could put some more in there in april...as for other investments I have a deep mistrust of shares and financial advisors which is why ive done nothing about my savings for years...

so do you think i should wait till the rates move to overpay?

getmore4less

If you can't find a better rate and not sure what other investment to do then overpaying is a good option.

I would not cash in any ISA money

IT is all part of retirement planning paying off the mortgage reduces future costs saving produces future income.