Overpay on Offset Mortgage or put money in savings?

sweetdaisy

Hi, just after a little advice.

We have £84,000 outstanding on our Natwest Offset Mortgage and have 14 years and 3 months term remaining.

We have £4,500 in savings of our own which is almost 3 months of my salary and we offset this against the mortgage. I also have a savings account for each of our two young children (in my name at the moment as we are using if to offset against the mortgage - but I add to it monthly the interest it would accumulate) and this comes to £5,500.

After all outgoings and putting money into savings I have around £50-£80 a month which I could use to either increase our monthly mortgage payments or put in savings.

Just wondering which is better: to increase monthly mortgage payments by £50-£80 or put the money in savings - we don't get any interest on our savings as it is used to offset, so is our Current Account.

At the moment our Offset Statement says that we are on target to repay our mortgage 1 month early :think: even though we have £10,000 in saving accounts and we have an average Current Account balance of £1,000 a month

Ideally I would like to take 4 years off the Mortgage and I'd be 42 years old but know that I will need to overpay a lot more than £80 a month, but want to make a start . So the question is would you put more money towards paying off the mortgage or just put it in savings?

(There are no penalties for overpaying on the mortgage and I can have the money back if needed)

Thrugelmir

What rate of interest do you pay on the mortgage?

sweetdaisy

Thrugelmir wrote: »

What rate of interest do you pay on the mortgage?

3.75% interest rate.

I don't get any interest from my savings as I am offsetting them all against the mortgage.

Thrugelmir

Personally I would continue to save into the offset facility. As at least then the money is still accessible in the event of emergencies.

sweetdaisy

Another silly question for me again ! I seem to be having some confusion about my Offset Mortgage and getting my head around the figures.

Mortgage Balance is now £76,400 and we have just over 13 years remaining on the term and I am aiming to repay at least 4 years earlier. Lately, I have been making regular overpayments directly to the mortgage and this year have made overpayments amounting to £1,400. I have one current account and 3 savings accounts which are offset against the mortgage.

I have an Excel spreadsheet to keep a check on where I stand which works out when the mortgage will be paid off. So far I am on target to repay the mortgage 1 year and 9 months early.

My question is about overpaying directly to the mortgage - obviously when I do this I see the mortgage balance reduce and after a few overpayments my term reduces by one month at a time (which I can see on my spreadsheet). But if I were to keep my overpayments in the Offset Savings account I will only see the balance go down as the monthly interest added to the mortgage reduces.

So, by saving the overpayments, rather than directly overpaying them to the mortgage will it take longer for me to reduce the term ? i.e. if I 'overpay' £100 it will come directly off the balance, but if I 'save' £100 I just pay less interest based on the £100 saved :think: - does this make sense?

So am I better off 1) overpaying, 2) saving the overpayments or 3) doing 50/50 of both?

I do have 'rainy day' savings and add to this weekly, so I have built up an Emergency Fund, but looking for some advice on the quickest way I can reduce the mortgage term.

getmore4less

It makes no difference if you overpay or offset(assuming that you overpay the offset money at the end).

Your spreadsheet model is wrong(not representative).

You need to model 100% offset somewhere in the spredsheet.

keep the emergency fund in the offset if the interest on the emergency saving is lower than the mortgage.

dimbo61

I would build up savings in the offset account until you have £16,000 in savings ( think benefits ) . I would then look at regular savers or cash ISA,s that pay 3.75%+
If you can't get 3.75% then just overpay the mortgage once you have a good savings pot.

Thrugelmir

dimbo61 wrote: »

cash ISA,s that pay 3.75%+
If you can't get 3.75% then just overpay the mortgage once you have a good savings pot.

Current ISA rates fall well short of this.

Thrugelmir

sweetdaisy wrote: »

but looking for some advice on the quickest way I can reduce the mortgage term.

Quickest way is to spend your money wisely and save as much as you can.

When the offset balance grows to a sufficient size you can then pay a lump sum off the mortgage.

sweetdaisy

Thanks for everyone's replies .

ValHaller

Your spreadsheet is misleading you. Suppose you have £10000 in your offset.. Your spreadsheet is telling you when you will have paid the mortgage down to £0. But at this point you will have £10000 in your offset. Your mortgage is actually paid off when the mortgage balance goes down to £10000 - you clear the mortgage with the offset.