What to do???

FrankieM

Hi,
I'm currently on a fixed interest mortgage with HSBC and I am allowed to overpay 20% of my monthly payments each month, which I do. My monthly payment is £1008 and I overpay by about £200 on top of that.

My question is,...because of the overpayments my mortgage term has been recalculated to being 15 years, from 23.
My fixed interest finishes end of November and I had planned to redo the term to 15 yrs, so my fixed monthly payment would then be around £1200 and then overpay the 20% of my monthly payment, which would work out to be about an extra £240. Then any 'extra' money I had, I was going to put into my ICICI savings account.

The thing is the new fixed interest rate I'm looking at is 4.79% and the savings account is 5.15%. The account is in my name and I don't work ( well not paid work!!) so I don't pay any tax on the interest.
Anyway, is it worth me not changing the term or overpaying but putting all the 'overpayment' into the savings account each month for 2 yrs and then paying off a lump sum?
The amount would work out to about £600 per month.

nrsql

You are saying that you will be paying £1440 per month from money that isn't considered taxable income?

FrankieM

The income is taxable. My OH obviously pays tax on his salary.
We wouldn't though, be paying tax on any savings because I don't work and so don't pay tax and all davings accounts are in my name.
I'm looking to be paying about £1650 per month towards the motgage.
I just want to know whether I should be paying that whole amount towards it or paying the standard monthly amount and then putting the rest in a savings account.?

Hereward

Personally, I would be saving the overpayment in the savings account as the interest rate is greater than that of your mortgage. This means that you will be making slightly more money, than you would be saving in interest on your mortgage. You could always use the savings at a later date to repay your mortgage. If you become a tax payer, then you would be better off using the savings to reduce your mortgage.

FrankieM

Thanks.
So would you get the mortgage over a 25 yr term again, so there is more to put in the savings account?

Hereward

FrankieM wrote:

Thanks.
So would you get the mortgage over a 25 yr term again, so there is more to put in the savings account?

Personally, I would try to keep the mortgage term the same because I would end up paying more interest in the long run on my mortgage; however, it could be sensible to lengthen the mortgage term if the savings product could guarantee to beat the mortgage rate over the whole term of the mortgage (this would make your savings geared as you are borrowing money to try and achieve greater return than the interest payable: it’s quite a high risk strategy).