Keep savings or OP mortgage dilemma

peanut75

Hello, I’m new to the forums, but not MSE, and would like some advice.

I have a dilemma at present. Currently I have a repayment mortgage of £50,700 at 5.08%. Repayments are £430 p/m and very easy to manage. I have been overpaying the mortgage sporadically over the last 5 years but have now set myself a target to clear the mortgage by my 40th birthday, which will be in 5 years (August 2015).

I also have £5k savings in an ISA at 2.65% (I think!). This is my contingency fund if any thing unforeseen happens.

The question is whether I should use the savings to O/P my mortgage?

wynnvegas

Hi Peanut,

I think a lot of people will advise you to keep a contingency fund to tide you over for anything up to 6 months should you lose your job or encounter some unexpected financial hits. I've never particularly believed in the need for this rainy day fund as both my girlfriend and I have secure jobs and this has allowed us to get pretty close to mortgage freedom in much less time than we had anticipated - albeit without savings, investments or a rainy day fund of any sort. I would doubtless be singing a different tune if it had all gone wrong somewhere in the last five years but only you'll know what's right for you.

Best of luck.

Cheers,

Billy

peanut75

Thanks for the reply Billy,

I'm starting at an O/P of £250p/m. The maximum we can overpay is £500p/m so it would take over 20 months before the savings were cleared, possibly longer. That would give us a chance to run down our savings and see how we feel about it as we go along.

WaxiesDargle

I have similar circumstances but my mortgage rate virtually matches the interest rate I get from the ISA's which as you know is tax free...I have £10,450 remaining on my mortgage that I'm paying just under 200 quid a month off and £12,000 savings in ISA's.

So in my head I've paid my mortgage off...but it's staying in the ISA for that unexpected kick in the teeth that may be round the corner

peanut75

Thanks Waxies, the thing thats getting me is the difference between the mortgage and the saving interest rate. From my logical perspetive I'm losing money and should use it to pay the mortgage off, alternativley I think i need some easy access cash for an emergency.

Thriftyknickers

Some mortgage accounts, like the Nationwide one, allow you to 'draw down' any overpayment you make. I've found this really useful and its pretty quick to call upon so we see this as our 'emergency fund'. (Mind you, having said that we're on their SVR which is currently 2.5%, so we're busy loading up our ISAs as the interest rate at the moment).