Pay more off the mortgage .. or save?

aurion22

I've recently retired and have already used some of my retirement lump sum to pay £15K off the mortgage. It is part repayment (approx £16K) and part IO (approx £4K) with just under 6 years to go at an interest rate of 1.5%.

I am now wondering whether I should pay more off or leave the rest of my savings in ISAs, which are currently paying more interest than I'm paying on the mortgage.

How can I calculate which is the better option?
Thanks in advance for any advice.

opinions4u

Work off the net savings rate v the actual mortgage rate.

You should be able to get higher than 1.50% in net savings rate rather than reducing mortgage debt. So I'd save in things like cash ISAs, AA Savings Account etc that pay more than 1.5%.

If you follow this suggestion:

1) Keep disciplined about it.
2) Keep track of savings rates and mortgage rates.
3) Be prepared to move your savings to a better paying provider.
4) If mortgage rates rise above your net savings rate, withdraw capital and interest from the savings accounts and pay it off the mortgage at that point.

£20k at 1.5% would cost you £300 a year.
£20k saved at 2.24% net (The AA) would earn you £448 a year.

So if you think it's worth £148 a year ...

(this all assumes there is no negative impact on benefits etc by retaining savings).

Wh05apk

Financially the difference will be minimal, provided you will still maintain some savings for emergencies, as you are now retired I would be tempted to repay the mortgage and be done with.

aurion22

Thanks .. I'm overpaying as much as I can now and saving, as ever, just in case!