Overpay or save?

kriss_boy

We currently over pay our mortgage by £600 a month.

Our rate however is only 0.4% above the BoE... so my thoughts are that we currently have one of the cheapest mortgages in history. Even if interest rates do start to climb up and our tracker follows suit, any additional borrowing we take over the next few years will be at a higher rate. (we are looking to upsize).

Wouldnt it make more sense to save the money instead, therefore reducing any additional borrowing required?

I'm concerned we are paying off a cheap mortgage to ultimately hunt for more lending in the future at a worse rate...

beecher2

Yes, it would make more sense to save it - fill up your ISAs first and try to save as much as possible in order to have the deposit you need to move.

kriss_boy

Thanks.

I've just applied for an ISA for myself and one for my partner.

Its just soo frustrating seeing so many amazing priced properties on the market right now. My dads offered to give up as part of his pension lump sum but I couldnt do that to him. Hah I never thought Id turn down money until now!!

Jonbvn

OP,

Our mortgage is a super cheap tracker like yours. We consider that it would be madness to OP now. We save/invest to get a much better return elsewhere.

Some savings/investment ideas for you to consider:

1. Cash ISA.
2. S&S ISA - there are several funds paying 6%+ - although some risk is involved.
3. Regular saver - LTSB paying 5%.
4. Cash savings - LTSB vantage account paying 4% AER - you can have 3 each with £7k.

Should rates change, we will divert money back into OPing the mtg, with the possibility of making large lump sum OP's from our savings.

kriss_boy

One other question though,

With our mortgage being relatively low and the potential interest we could gain on a savings account being low would it not look good to our lender us overpaying?

ie. We will only pay off about 7K this year with our overpayments- but in the long run will this stand us in good stead when we ask lloyds tsb for a larger mortgage?

Will they note the overpayments and therefore allow us a greater mortgage or perhaps at a better rate? Or is that irrelevant?

Jonbvn

kriss_boy wrote: »

One other question though,

With our mortgage being relatively low and the potential interest we could gain on a savings account being low would it not look good to our lender us overpaying?

ie. We will only pay off about 7K this year with our overpayments- but in the long run will this stand us in good stead when we ask lloyds tsb for a larger mortgage?

Will they note the overpayments and therefore allow us a greater mortgage or perhaps at a better rate? Or is that irrelevant?

Having the largest possible deposit will always improve your chances of obtaining a good mortgage, more than anything else. You may be able to get a much better mortgage with someone other than LTSB.

Getting a return of say 4% (gross) on £7k will make you £280, less the mortgage interest you pay on the same amount (0.7%) £49. So £231 gross. Not bad for just rearranging your finances.

getmore4less

The problem with overpaying this cheap money is that you reduce the option to take it with you(port) when you want to get more money that will then be at a much higher rate.

People with cheap mony from a lender that is competative with extra borrowing should try to keep the cheap money for as long as possible if they plan to borrow more in the future.

It gives you more options.

Gorgeous_George

I'm sure that your lender would love you to overpay but they will think no more of you when it comes to the next application. Underwriting is faceless and based on the results of a spreadsheet. You'd do better going interest only rather than overpaying and saving the cash as suggested above. Don't forget first direct do a regular saver at 8% gross.

Assuming interest rates stay the same for 5 years (and they might), you could have saved an extra £2K. Larger deposit.

GG

treliac

If you've overpaid, i.e. reduced your outstanding balance, when you come to remortgage you will have more equity in the property. This will count as your deposit on another property.

Saving sounds to be better use of your money at the moment, considering the mortgage you have, but it can take more self-discipline for some people to maintain regular saving.

Either way you can make your spare cash work for you!

kriss_boy

I think paying off 'good debt' to ultimately borrow it at a higher rate in the future is maybe the better option for us.

It only equates to hundreds of pounds rather than thousands but it means the money isnt sitting there smiling at us in a savings account.

The level of overpayment we decided on is meant to allow us both to save also.

kriss_boy

Changed my mind again and just set up two ISA's for myself and my mrs.

Do you think theres any point in getting one of those fixed term, 4 year savings accounts with no withdrawls. You can get about 5% but Id only be putting in possibly as little as £100 a month...