Better off overpaying mortgage or saving?

Ronknee

I am a standard taxpayer with a mortgage fixed at 4.39% and am overpaying by quite a lot each month

Interest rates have since risen, so am I better off overpaying it or investing the money I am overpaying?

If so, what rate of interest on my savings would I have to earn gross or nett to move the overpayments into savings?

Paul

Walletwatch

Ronknee wrote:

I am a standard taxpayer with a mortgage fixed at 4.39% and am overpaying by quite a lot each month

Interest rates have since risen, so am I better off overpaying it or investing the money I am overpaying?

If so, what rate of interest on my savings would I have to earn gross or nett to move the overpayments into savings?

Paul

As they say, 'different strokes for different folks', but if I were you, I would have some savings in, say, an egg online account - if you're a standard tax payer, then egg offers you 5.5% gross or 4.4% net, which is almost the same rate as what you're paying out on your mortgage.

Given this, you're no worse off saving some money in an egg account or something, from an interest inflow v/s outflow point of view. It just gives you an avenue you can turn to, should you need a lumpsum in an emergency in the near future, instead of turning to costlier debt at that stage.

Another thought is - have you used up your ISA allowance? If not, you are definitely better off having savings in an ISA (a cash mini-ISA offers you a risk-free tax-free 5.35%) which would mean you're better off than overpaying on your mortgage.

MarkyMarkD

Absolutely agree with what Wallet says.

bunking_off

As a basic rate taxpayer on your mortgage rate, would agree with Wallet-watch (name slightly changed because otherwise the profanity detector kicks in!). However, be sure to review your situation regularly, e.g. if the Egg rate falls or you reach the end of your mortgage fix, or your tax situation changes.

As a general rule, clearing your mortgage is best, but when there are providers out there who are offering irrational/loss leading rates, this can skew things as in this case.

DiggingOut

One other thing, if married and your wife is not a taxpayer, you could put the savings in her name at egg and get 5.5% tax-free, which is much better than your mortgage rate.

One advantage to overpaying the mortgage is discipline -- the money is gone, you can't easily get it back to spend it for something expensive for Valentine's Day. But, of course, if you put it all in her account, she should be happy without expensive gifts....