Am I right not to overpay?

actually_2006

Just wanted to make sure I am not missing something.

I have been meaning to get round to sorting out overpaying the mortgage for ages.

Anyway, I have finally got round to looking into it. I have dug out our last mortgage statement and the interest rate is only 0.69%.

I have a Santander 3% savings account and a first direct 8% (I think, could be less) regular saver. (An ISA too but that is my emergency funds hopefully never to be needed)

As far as I can see, we would be best off saving the money rather than overpaying on the mortgage, and keep the savings (and interest earned) to use to pay off a chunk of the mortgage when the interest rate goes up. The only downside I can see is making sure we don't spend the money (which, provided I tell myself it is mortgage money and not for spending shouldn't be a problem). I suppose there could also be an issue with the level of overpayments allowed each year which I will check.

We are also cashing in an endowment shortly and may have £10,000 to put towards the mortgage - again I am thinking savings account at the moment.

Other than that, am I missing something obvious as to reasons why we should overpay? So many people talk about overpayments that I just want to make sure there is not something obvious I have overlooked. I presume we are just very lucky with our interest rate (as we only needed to borrow 30% of the value of our house).

(Repayment mortgage of £90,000, 19 1/2 years left)

Thanks

Lois_E

Sounds like a sensible analysis of your options. Many people on here consider it to be a kind of virtual overpayment if you save in an account that pays higher interest than your mortgage, commit to keeping that money for your mortgage and not spending it on anything else, and plan to overpay with it as soon as the interest rates change so that it makes sense to do so.

When interest rates do go up, remember to do your comparison by comparing the mortgage rate with your savings rate after tax.

Good luck with saving!

actually_2006

Thanks Lois_E.

Just have to be disciplined and make sure the savings don't get spent on holidays (my weakness!)

rictus123

How come your mortgage rate is so low??

jakky11

I Am Not Eligible To Receive Title II Adult Disabled Child Benefits Now Because My Parents.

actually_2006

rictus123 - not really sure why it is so low. I was pregnant and pretty ill when we moved so left my husband to sort it out. I guess it was because we only needed to borrow 30% of the house price (very fortunate to have bought previous house and a flat before that in London and ended up making a lot of money on them) and the sum borrowed only worked out about 1 1/2 times joint salary. They didn't even ask us for proof of salary.

It was with Woolwich, now Barclays, taken out 5 1/2 years ago.

Trentenders

Congratulations on the rate!

As a suggestion, if you're worried about spending the money, why not lock it away in a 1/3/5 year bond, which should earn more than the 3% you mentioned?

Also, I would always suggest filling your cash ISA allowance every year, before saving anywhere else. Although interest rates 'may' be a little lower in some instances, they're obviously tax free, and they will continue toserve you well in future years.

Good luck with the virtual overpayments (",)

Sepa74

Wow, that's brilliant that you have such a low rate, and so many options!

I second Trendtenders comment about the ISA, and also suggest that you mentally earmark money in the lowest earning account as your emergency money rather than the money in the ISA, as once you withdraw it, you can't replace it.

ISAs pay out tax free interest, so provide a very handy stream of tax free income once you are retired, so if you've got them, it's best to just let them sit and grow.