Mortgage Vs Savings

kentona77

Hi, need help on the following: -

Have a fixed rate mortgage of 5.75% till May 2013, have a Santander ISA currently paying 3% interest.

We have £8,500 that we were thinking of paying of our mortgage capital, but ….

When our fixed rate ends in 2013 (We will still have 10 years left) we are thinking of borrowing extra so that we can extend, we don’t know what to do for the best: -

Is it still best to pay off what we can of our mortgage. Then increase our mortgage by the extra in 2013? Or

Keep the money in our savings so we won't need to increase our mortgage so much later?

Thanks

Thrugelmir

Pay down the mortgage as much as you can. Though leave sufficent cash in a savings account for emergencies.

dimbo61

You should have an emergency fund of between 3/6 months of income just in case ( the car needs replacing/ new boiler/kitchen)Much better to pay from your savings Earning 3% rather than taking out expensive finance!So £8500 is a good emergency fund, put in Cash ISA earning 3.5% with A&L or santender.Overpay if you can afford over next 3 years and check if you can borrow back any overpayments !!!Overpaying by say £500 a month would build up a £18K fund to have work done if interest rates are not too high ! GOOD LUCK

Gorgeous_George

Get the extension done now. This will give you three more years return on your investment.

If you need/want to wait three years it is probably better to overpay so long as your mortgage rate is higher than your savings rate. Howver, if prices fall you may not meet your lender's LTV criteria for a 2nd mortgage. At least by keeping the savings outside of the mortgage you could have an option to stick with your current mortgage deal and fund the extension from savings/personal loan.

GG