Advice re overpayments or savings 4 September 2006 at 6:07PM in Mortgage-free wannabe 8 replies 1.2K views

Llyllyll

Evening all,

I currently have a mortgage of 57K (3 year discounted/flexible deal @ 4.94%), house value is approx 145k.

I have 6k in 2 ISA's and 4K in a 4.75% savings account.

I can make overpayments (as much as I like as long as it isn't redeemed in full) but would it be sensible to make such overpayments (as much as I am allowed) for the next 3 years or just keep making the standard DD payments and keep saving.

In 3-5 years time I also plan to be able to have enough equity in the house (approx. 125k) to be able to sell up, buy some land, do a self build and be completely MF or at least only have one for 15k to 20k-ish.

Any advice greatly appreciated.

PS - Have read the mortgage vs savings thread but would still appreciate some comments.

Thanks

humfer

Have a look at the mortgage amortisation table calculator below - its a US site but you can just substitute the dollars for pounds. Best one I have found and you can play around to see which would work for you. Personally I would keep you ISA's as they are and use any other spare cash to make overpayments

http://www.loanbright.com/edirectlending/calc_amortization.html

save-a-lot

Hi

I would probably opt to pay the £4K off the mortgage as a lump sum simply because the interest rate on the mortgage is greater than the savings. Then, if you make regular/monthly savings to a savings account divert this into further overpayments on the mortgage.

In summary
£4K lump sum
divert regular saving into mortgage as monthly overpayments aswell.

Keep your ISA's as an emergency fund, then if you feel comfortable enough in a year or so's time overpay another lump sum from your ISA. How much are you earning from your ISA's???

Llyllyll

It's a Halifax ISA - pays 5.00% AER/gross p.a.

save-a-lot

Hi

I reckon keep the ISA's, they are earning a smidgen more interest than investing the money into the mortgage debt, I always feel a little more comfortable with life when there is a few grand tucked away aswell. Besides, the high interest savings, you will be paying tax on the interest which will diminish it further, so definately pay this off the mortgage.

jamesd

You could consider moving the ISAs to get the 5.75% from Ruffler Bank.

For the 4,000 you could start using the 12% before tax Alliance and Leicester regular saver account, which allows up to 250 a month deposited for a total of one year, then the account is closed. Or mix in the variable amount Lloyds TSB 8% before tax account.

There are enough options there that you should be able to exceed your mortgage interest rate, which is equivalent to 6.175% before tax for basic rate tax or 8.23% for higher rate.

Llyllyll

Don't qualify for the A&L account as I'm already with them. Will have a look at the others though. Thanks.

humfer

Llyllyll wrote:

Don't qualify for the A&L account as I'm already with them. Will have a look at the others though. Thanks.

Try and go for the Lloyds account then as the 8% regular saver is fantastic as it last 2 years and you can get a much higher balance in their quicker - i.e. £750 in the first month as opposed to just £250

leadPops

http://forums.moneysavingexpert.com/showthread.php?t=257522