Save or Overpay?

Andrea75

Hello,

I am hoping to get some much appreciated feedback on a much debated subject i'm sure....shall I save or overpay?

I am currently making overpayments of £350 each month but I have recently had a pay rise which means I have an extra £150. My bills and expenses are all accounted for so this money is spare cash.

I really don't know what to do for the best....save it (I have a bit of savings which I pay into every month) or use it as overpayments as well?

I have an emergency account in case anything goes wrong. I want to pay as much off my mortgage as I can (starting now) so I feel it would beneficial in the long run to overpay this extra money and deprive myself of any luxuries this year.

Please help....any thoughts?

katejo

Andrea75 wrote: »

Hello,

I am hoping to get some much appreciated feedback on a much debated subject i'm sure....shall I save or overpay?

I am currently making overpayments of £350 each month but I have recently had a pay rise which means I have an extra £150. My bills and expenses are all accounted for so this money is spare cash.

I really don't know what to do for the best....save it (I have a bit of savings which I pay into every month) or use it as overpayments as well?

I have an emergency account in case anything goes wrong. I want to pay as much off my mortgage as I can (starting now) so I feel it would beneficial in the long run to overpay this extra money and deprive myself of any luxuries this year.

Please help....any thoughts?

If I were you, I would poobably put it towards the mortgage as long as your mortgage deal does not have a maximum overpayment restriction/penalty.

bobthedambuilder

There's no simple "one fits all" answer to this. It depends on so many factors which you haven't included in your post, e.g.
- Do you envisage any lifestyle changes in the foreseeable future e.g. marriage, children?
- How much have you got in the emergency fund? Perceived wisdom suggests 6 months outgoings min.
- How secure is your job?
- What is your attitude to debt? Does clearing your debts take priority over additional pleasures in the short term?
- How much left on the mortgage? How soon could you pay off completely, or how much can you shorten the period by overpaying?

Your best bet is to sit down and list out your aims and desires, then try and prioritise them and come up with a reasoned game plan. If you've done this, you will feel so much better about your final decision. And it doesn't have to be all or nothing - you could add a part of your rise to your overpayment and use the rest to treat yourself.

Sounds like you're already doing very well btw, so good for you!

Andrea75

Thanks Bob, you have given me lots of things to think about that I didn't even initially consider.

Thanks again and happy new year.

RenovationMan

Before you start overpaying you might want to make sure that you have sufficient emergency savings and insurances in place (i.e. redundancy protection, etc.) and then also look at your retirement savings to make ure that your projections will meet your retirement needs. After that the only thing to consider is whether you can get a better savings rate than mortgage rate, and if you can then put your money into a savings account until a point is reached when this reverses.

Andrea75

I have sufficient emergency savings etc but not really considered redundancy protection. Also, my savings rate is a waste of time but I like to have a savings pot in case I anything goes wrong and for peace of mind. Don't we all?

Thank you!

RenovationMan

Andrea75 wrote: »

I have sufficient emergency savings etc but not really considered redundancy protection. Also, my savings rate is a waste of time but I like to have a savings pot in case I anything goes wrong and for peace of mind. Don't we all?

Thank you!

What about a pension? Do you have one in place and if so, is its projected value sufficient for your retirement needs?

dunstonh

Personally, I am overpaying the mortgage, increased my S&S ISA and increased my pension contributions. Making hay whilst the going is good.

I dont see the point of doing just one thing unless your debt is too high or you have expensive debt which needs to be cleared ASAP.

DMFR

You can have over payments returned.

From Nationwide website

If your product has a drawdown or borrow back feature you may be able to borrow back the money that you have overpaid. Not all of our products have the borrow back feature, Consumer Credit Act 1974 regulated accounts do not benefit from this feature.

RenovationMan

DMFR wrote: »

You can have over payments returned.

From Nationwide website

Only if the mortgage account has a drawdown or borrowback feature (or other flexible mortgage agreement). As your quote says, "Not all of our products have the borrow back feature". It's wise to check that you can get the money back out, no strings attached, before putting it all in.

When I say no strings attached, I mean that you borrow it back at the same mortgage rate and that they don't ask awkward questions like 'are you in permanent employment'. No point having your mortgage reserve as a safety net if they actually won't lend you the money back if you lose your job.

If you have substantial savings, then the safest method seems to be to get an offset account. I had one of these when I was contracting for a living and used it to keep all of my emergency savings and my income tax monies too. Worked really well.

Andrea75

Yes i have a secure pension which will meet my retirement needs thankfully. I know what you mean, it's best to have options and I was thinking of paying half into overayments and putting the other half into my emergency fund. But the other side of the coin tells me to pay as much off as i can which interest rates are low. My mortgage is with Halifax SVR 3.5%. I don't know why I am so fixated with paying my mortgage off asap but I am. I have never had credit cards or debts before (except when I bought my car a few years ago) so i think this is why I am focused on doing what i can to get it paid. Am I alone in thinking like this?