Am I doing the right thing overpaying please

moneysavermum_2

I have a £95000 mortgage with nationwide on 2.5% bmr. I have just upped my payment to £1000 from regular payment of £497.

However this has left me with regular outgoings and £250 for regular savings i.e xmas/car maintenance and only £100 to go into a cash isa.

Should I have built up my savings first or maximise payments while interest rate still low.

I am still buying a car till january 2013 and pay £421 for this a month. I could throw this at the mortgage from then as well.

How do you manage your accounts and saving for xmas etc. Do you just leave all monies in your current account/ or put everything in an cash isa. The only thing is would need to take out of it for xmas/car maintenance/childcar in holidays. At the moment I am putting these amounts in seperate accounts.

financialbliss

Bit of a hot potato this one - some like to see their mortgage drop month on month whatever their mortgage rate, while others will say don't overpay.

I'd say don't overpay, as you can beat the 2.5% with various savings accounts.


Like yourself, I'm about to drop onto the Nationwide BMR of 2.5% from April 2011.

I'm abandoning all overpayments at present and putting as much as I can in the Nationwide e-ISA which is 3.1%

I chose the Nationwide e-ISA as you can transfer to/from immediately like their e-Savings, thus should I need to revert my strategy, I can do so at a moments notice.

Financial Bliss.

Rich1976

What is the point overpaying when you're going to leave yourself so short of money and wondering how to pay for Xmas and your car maint?

What happens if an emergency crops up such as a boiler failing or the car breaks down?

You need a decent emergency fund before even considering overpaying. Oce the money has gone into the mortgage it can be difficult to get it back.

You really should have 6 months worth of wages in a decent savings account before even considering other options.

Ideally you should work out a budget of what you can afford to save - based on what you're saving for and only if there is enough spare cash then consider overpaying.

Why are you overpaying up £1000, where did this figure come from? If you reduced the overpayment to say an extra £200 a month then the rest you can put into savings to cover your expenditure.

moneysavermum_2

Thanks for the comments. My regular mortgage is £497. I was comfortably making overpayments to make payment £700. When I worked out my budget after putting money away for xmas/car maintenance I could afford to go to £1000 a month total payment.

I am just aware that the interest rate will not be this low in the future and feel its my opportunity to get it down abit. It is currently £95000 and I am 41 so no spring chicken.

But for emergency savings could only put away £100/£200 month maximum as well as overpaying.

Just see this time of low interest rates as a way to reduce the capital on the mortgage.

Sepa74

Hi Nje,

It makes no odds whether the savings are in the mortgage or in a savings account - they are still yours. If interest rates rise, you can put the excess savings on the mortgage, to reduce the interest you pay at that point. But in the meantime, if it's in an ISA that pays more interest than you are charged on your mortgage, you will actually be quids in.

It's nice seeing the mortgage plummet, but you have to remember paying it back is a long haul and you need to look after your short to medium term financial health too.

SeriouslySeekingtoSave

As said above, mortgages are marathons and I know (oh boy do we know) how great it is to watch that big total drop month by month this shouldn't be at the expense of financial security. Look at the low rates as an opportunity to have spare money to put into savings rather than it eaten up by interest payments.

If your savings are beating your interest then you aren't losing anything and you have the security as well. One way to still feel like you are dropping the mortgage is to minus your savings from the mortgage total. Not quite the same I find but close :-)

Engeroosi

Am i not right in saying that any overpayments on a NW mortgage go into a reserve which can be accessed by writing a letter or email requesting money back. They sendout a cheque with the week I think.

snowmen

Engeroosi wrote: »

Am i not right in saying that any overpayments on a NW mortgage go into a reserve which can be accessed by writing a letter or email requesting money back. They sendout a cheque with the week I think.

It depends when the mortgage was taken with them. There was a cut-off and all mortgages taken after this date ceased to have this facility. Ring them up or have a look on your mortgage statement - if it says overpayment reserve then you have this facility.
Worth mentioning if you do have it and then transfer onto one of the other mortgage products you will lose this feature as it is taken as a new mortgage again.