To save or not to save

jellybaby21

Hi I am an MSE newbie! I've just taken out my first mortgage, and have been reading the saving v paying of your mortgage articles. I am slightly confused - am I right in thinking that you shouldn't save for an emergency fund (the money is better spent paying off your mortgage) but if you want to save for something specific, i.e. a wedding then it is wiser to save your money in an isa or savings account rather than putting any spare money into mortgage payments?

lilac_lady

I think an emergency fund is essential so I'd save a set monthly sum in an instant access account for that first. Any other savings should go into an ISA after finding one that 'll give the best taxfree interest.

dimbo61

The problem with putting all your spare money into overpayments is that you cant depend on the mortgage company giving you back the money when you need it for the big wedding /new car ETC.
Better to build up 3/6 months of income first as an emergency fund and then overpay the mortgage.
You could always start with a small overpayment while building up your emergenvy fund which you increase as funds permit.

jellybaby21

thanks dimbo, so let me get this straight, your advice is to build up and emergency fund which is separate to the savings for the wedding. So should I build up an emergency fund first, then start saving for the wedding, and only after the wedding fund is complete then make over-payments on my mortgage? :cool:

MB1919

jellybaby21 wrote: »

thanks dimbo, so let me get this straight, your advice is to build up and emergency fund which is separate to the savings for the wedding. So should I build up an emergency fund first, then start saving for the wedding, and only after the wedding fund is complete then make over-payments on my mortgage? :cool:

It is always a good idea to have an emergency fund of 3/6 months of wages just in case your mortgage payments increase at some point. You will need to re-mortgage in the future and when that time comes interest rates will probably not be as low as they are at the moment. You also may need some spare cash for other emergencies/change of circumstances, e.g. roof repairs, car repairs, arrival of baby etc. On top of all this, you have to save for a wedding. I would make sure I had all that money in hand before I thought about making overpayments - unless you delay the wedding of course!!

dimbo61

So many people get caught out when unexpected bills come through the letter box.
Now if you put that on the CC bill and dont pay it off in full each month then the debt gets bigger each month.
Much better to say we have that 3/6 months of income in savings to help get the new car/ replace the boiler/ pay for a wedding rather than take expensive finance.
Once you use some of this money you then build your funds back up.
overpay once you have done this

wymondham

Alternatively, depending on the type of mortgage you have you can withdraw an amount if you need it, and overpay when you don't - very much depends on the type of mortgage though (offset etc).... best of both worlds!

jellybaby21

I have a fixed rate mortgage. Thanks so much for everyone's advice, I am starting to feel much more confident now! So I think it's just save, save, save for now before I start thinking about overpayments. I guess with a fixed rate mortgage I can't make withdrawals, so am better of saving?

TrickyDicky

I see the emergency fund as the "looking for a new job" fund. If you were to be made redundant it gives you few months to find a job and be able to pay the mortgage.

jellybaby21

that's a really good way of looking at it

marble_head

TrickyDicky wrote: »

I see the emergency fund as the "looking for a new job" fund. If you were to be made redundant it gives you few months to find a job and be able to pay the mortgage.

Not just that! Don't forget that being a home-owner can bring in all sorts of surprises. Boiler break downs, washing machine breaking, roof leaking etc. Not to mention other unexpected bills like cars breaking etc.

As other posters have said, if you use spare money to solely over-pay your mortgage then if you have a problem the mortgage company may not release this cash back to you especially if the value of your home has fallen.

If you look to save money then as long as it is earning the same / more than the interest rate of the mortgage then you are not doing too badly.

Yes, would definitely look to get 3-4 months worth of mortgage bills (plus council tax, electric/gas etc) in the bank in case of redundancy. Once that is built up then can look to start saving for the wedding! Or alternatively look at what you can save monthly and split some into wedding and some into emergencies, this way at least you will feel like you are already saving towards the big day plus being sensible and hedging again future catastrophes!