Overpayments vs. savings

gzed

Hi,

I currently have a fixed term mortgage running for another 4 year. Each year I can put aside ~£5k of savings. My question is shall I use those £5k to make extra payment on the mortgage (my overpayment limit is more than the £5k) or should I put them in a savings account and use them when my current fixed deal expires to increase my negociation "power"


My question is not so much about the interests rate but more about what will happen when my current deal expire and how I can make my position stronger.
Cheers.

opinions4u

1) Prioritise a contingency fund first that will allow you to survive for 6 months should your income cease. I'd suggest www.theaa.com/savings as a starting point, although the 3.2% Santander ISA may be a place for the first £5,100.

2) It is all about interest rate. If the rate on the mortgage is higher than the rate on your savings then pay off the mortgage. If not, save.

3) Remember to review where any savings are every few months to ensure that the rates remain competitive and how they align to the cost of your mortgage.

ceh209

I'd say it also depends what your LTV is. If it's say 80/85% now, and overpayments would bring it down to 75% by the time your fix finishes, you'd probably find you could get a better deal then.

gzed

thnaks Opinions4u

1- I already have the contingency and a 3% ISA (yet to use this year allowance though)

2- My mortgage interest rate is 4.7%. So based on this best to make overpayment on the mortgage. I'll wait until the end of this year to do it as it is simpler at that time of the year so as to have a direct recalculation from the mortgage provider

3-I do this already


I am also keen to know what is current practise about renegociation of mortgage. When my current mortgage deal comes to an end will I need a new deposit to get a new deal (even with another provider)? Or I am likely to lose out without a new deposit? I am only talking about fix rate as I know I can always take a flexible at the end of my fixed term period.

gzed

ceh209 wrote: »

I'd say it also depends what your LTV is. If it's say 80/85% now, and overpayments would bring it down to 75% by the time your fix finishes, you'd probably find you could get a better deal then.

The original mortgage is for 75% of the property's value

ceh209

gzed wrote: »

The original mortgage is for 75% of the property's value

Then Opinions4u's advice stands - the LTV isn't so much of an issue. :cool:

Jonbvn

gzed wrote: »

2- My mortgage interest rate is 4.7%. So based on this best to make overpayment on the mortgage. I'll wait until the end of this year to do it as it is simpler at that time of the year so as to have a direct recalculation from the mortgage provider

This depends on your mortgage. Most mortgages calculate the interest daily. A few calculate it yearly. If your mortgage interest is calculated daily, it is much better for you to make an overpayment ASAP, since you will save a lot of interst.

getmore4less

It makes no difference from a negotiation point of view you are either below the LTV target or not at the time. saving gives more flexability but with your interest rate at a cost.


If interest is calculated daily(which is different to when payments are calculated) then pay the money off the mortgage as soon as you have it if it is penalty free.

gzed

I think my interests are calculated on a yearly basis (or monthly but definitely not daily--I have no line on my agreeemnt that mention daily). I am also allowed 1 overpayment every year free of any fees (every January) and the mortgage is then recalculated at the end of Jan.

So I guess the best is to put extra cash in the ISA during 11 months and then make an extra payment on the mortgage in January.

I have just calculated that a couple of grand extra every year would cut my mortgage duration by one third. This looks the way to go.