overpay mortgage 2.49% V saving 3.1%

bhindi

I have just taken on a 2.49% tracker mortgage. Repayment per month is £460. I will continue to overpay by £540 unless it makes better sense to pay this additonal funds into a savings account. I have seen that Santander are doing a 3.1% savings a/c with a bonus of 2.6% at 12 months.

I dont understand how negative interest works on a mortgage to know if a 3.1% saving is actually better than paying into the mortgage.

Could anyone please help me.

Ps I am a normal tax payer ..

getmore4less

negative interest whats that?

Is your mortgage 2.49% or base + 2.49%

3.1% with 20% tax is (3.1% * 0.8) net 2.48%

better to overpay or find tax free saving over 2.5%

Don't forget emergency savings/cash flow.

bhindi

Sorry I meant its the interest on a mortgage which I see as negative, where as savings interest is positive.

The mortgage is the 1.99% plus BOE base rate.

As a First direct acc. holder I could go for there regular savers acc. that pays 8%, but you can only invest £300 a month for 12 months, though my partner could do the same in his account.

Would that then make it better to save than bring down the mortgage ac.

I sound like Im desperate to save, where in fact its quite the oposite. I love seeing the mortgage reduce, and am probably one of the few that gets slightly excited to see the new statements on the mortgage acc when they come in. Its just that I realise I need to make money work better for me. And I dont like to think I'm wasting an opportunity to reduce the debt.

ACG

I would also look at more than just the percentages.
For instance if your doing all of this for the sake of £5-10 a year, i know its £5-10 better in your pocket but there becomes a point where its not worth the hassle (in my mind anyway).

HappyMJ

bhindi wrote: »

Sorry I meant its the interest on a mortgage which I see as negative, where as savings interest is positive.

The mortgage is the 1.99% plus BOE base rate.

As a First direct acc. holder I could go for there regular savers acc. that pays 8%, but you can only invest £300 a month for 12 months, though my partner could do the same in his account.

Would that then make it better to save than bring down the mortgage ac.

I sound like Im desperate to save, where in fact its quite the oposite. I love seeing the mortgage reduce, and am probably one of the few that gets slightly excited to see the new statements on the mortgage acc when they come in. Its just that I realise I need to make money work better for me. And I dont like to think I'm wasting an opportunity to reduce the debt.

Yes use the 8% deal from first direct. That is profitable. It is £300 each so that is £600 a month sorted. At the end of the 12 months then you can either transfer the money onto the mortgage or another high interest savings account such as Santander. You should be saving your emergency money in that account in the meantime as you can withdraw that at any time. Saving any money in your current account is the worst as that is only 0% in most cases so on payday do lots of transfers so your current account only has as much as is needed to cover the direct debits and any cash that you need for the month. Also, use a credit card each month for everything that you spend money on and always pay it off in full and you will also save interest as well. Depending on how much you spend Santander has a cashback credit card paying up to 3% on some of your monthly spends mostly it is 1%.

It's not all about reducing the debt it's about increasing your net worth. If you have £100,000 on the mortgage paying 2.49% and have £100,000 in Santander savings earning 2.48% then your mortgage can be considered to be paid off. Once interest rates increase (one day they will)you can then make the payment to get rid of the mortgage if savings rates are worse.

bhindi

Thank you, that was a very helpful reply. We always pay off interest cards every month, and have no loans etc. I am savy in that regard, but understanding interest rates, and how their impact performs is very challenging for me, but I am going to make an effort to watch the savings market from now on.

Thanks again.