Help me work this out please...(long!)

Bargain_Rzl

Hi folks, this is a bit complicated but here's a puzzle for anybody with a mathematical brain who fancies having a crack at my finances

I have a Nationwide mortgage which began in late November 2006 and is fixed at 4.89% until 30 November 2008. I have made no overpayments thus far, though I am allowed to overpay up to £500 per month during the fixed rate and unlimited amounts thereafter.

I currently have £1500 genuine cash savings (I say "genuine" because on paper I currently have about another £5000 on top of this, but this is purely due to uneven cashflow throughout the year and I like to keep all spare cash at as high an interest rate as possible so long as it's instant access). I also have a MINIMUM of £100 per month (which I am hoping to get closer to £200 through general thrift) available to be split between savings and mortgage overpayments.

I have just opened a Lloyds TSB Monthly Saver paying 8% fixed for 2 years (I'm a standard rate taxpayer so am assuming this is 6.4% net interest), and have made the maximum opening deposit of £500, with the standing order set up to pay in the maximum monthly deposit of £250 from 27th of this month until such time as I need to reduce it. When the 2 year fix is up I will need to make a decision about how to split this between a lump sum off the mortgage and a nest egg in cash savings. As long as this account is paying 8% it makes no sense for me to make regular mortgage overpayments.

HOWEVER

The part I can't work out is what to do with the rest of the lump sum I'm currently sitting on (£750 left of the genuine savings after £500+£250 I've just directed into the high-interest Monthly Saver, plus, as I say, about £5k cashflow which is currently split between an A&L savings account paying 4.5% and my Lloyds current account paying 4%). If I leave it where it is, it's not doing anything to my mortgage interest. It can only be paid into the Monthly Saver in chunks of £250, and that's not until 27th February. So it really isn't being very efficient.

I used up my current cash ISA allowance last year while saving for the flat, so can't open another until April, and I'm not even sure there will be a point in opening one at all unless I either have money over and above the £250 I can put into the Monthly Saver, or a fab new ISA comes on the market that's paying more than 6.4% APR!

SHOULD I MAYBE PAY £500 OFF THE MORTGAGE RIGHT NOW OR WILL THIS PROVE INEFFICIENT IN THE LONG RUN? WHAT ABOUT NEXT MONTH? I know that I wish £1000 of my current £1500 savings to be used for mortgage overpayments so provided that it's an efficient way of doing things, I don't mind that if I pay this off now it will effectively be locked away forever.

P.S. The Regular Saver is instant-access with no withdrawal penalties so there's no reason why I shouldn't pay £250 in each month regardless of whether it's earmarked for expenditure later in the year.

P.P.S. My mortgage is not very big and is on 40% of a shared ownership flat so I want rid of it as much of it as possible, as quickly as possible...

I know this is long and complicated but any suggestions, comments or alternative low-risk strategies would be welcome.

lizzyb1812

Efficiency seems to be key to you, so I would say that if you can find savings vehicles that earn you net interest which is higher than your mortgage interest rate, then it looks to be more efficient to save until your fix is up. When the fix is up, if your new mortgage interest rate is higher than your savings net interest, then you could pay off what you have saved, including the interest earned to reduce your borrowing.

There is nothing to stop you having multiple regular savings accounts or high interest accounts

HTH

lizzyb

PS although I've replied I think you seem pretty clued-up anyway and should trust your own conclusions