overypayment or savings....

keeks82

Hi all,
I'm new here so forgive me if I am casting old questions back to the forum but I was hoping for some advice on my plan of financial action:
Details

• I have a mortgage of £108000 with a 17 year term left with C&G on the SVR of 2.5%, paying £630 per month.
• I have a small amount of savings which I will continue to add to with 6 monthly bonuses (discretionary).

I have planned on saving £750 per month to an online easy access savings account, but then I thought about overpaying that amount to my mortgage. I used the calculator on here and if I paid off the £750 as an overpayment to my mortgage, it would be pretty much fully paid in just over 6 years.

Is this too good to be true or am I missing something??

Therese1

There is no right or wrong answer because its really just working out what's right for you. Some questions to ask yourself ....

Do you have an emergency fund? Good idea to have 3 to 6 months worth of normal income in a pot to either keep you going if you need to find a new job or for unexpected expenses like big car or house repair. I recommend getting this first.

Then.. Is the interest on savings more than mortgage interest. If so might be worth saving then clearing mortgage in lump sums.

Or ... If mortgage interest is higher pay this off first.

Your answer to the last 2 might be a mix of both eg pay 500 extra to mortgage and 250 to savings?

Provinces you have the emergency fund it's just what feels best for you. For me I hated having a mortgage debt so cleared it asap.

I hope this helps.

Good luck : ))

molit

another thing to consider is LTV, a fe extra k might be the difference between mortgage deals

MisterMotivated

Ultimately, it comes down to whether you could get a better interest rate on your savings (after tax) than 2.5%. If you can, then why not keep saving the money, then make a lump sum overpayment further down the line. That way, you're still setting aside the money to pay down the mortgage, but you also have it available if you need it for some unforeseen situation.

CKhalvashi

We started to pile up the savings in fixed accounts at 4% (over 3-4 year terms) then paid off completely when we downsized (although still in a ‘big’ house (I’m 29 with 2 young-ish kids).

It’s ultimately what’s right for you, and whether you’re going to be tempted to stick the money in savings and splash on something nice in the months afterwards. If you think this will be the case, overpaying is the best option.

CK

abouttimetoo

Welcome to the board Keeks82

I've just done a quick check of your numbers and yes they stack up re your overpayments (obvioulsy as long as the SVR stays the same). The others have already mentioned some other things you need to think about and I'll just throw a couple of others in too

• what rate tax payer are you as this could alter your plans if you did decide to put the money into a savings account with a higher rate than 2.5%
• do C&G allow you to make unlimited overpayments or are there limits, charges etc (my mortgage is with C&G and I can make unlimited OP's without charge and I do this everymonth via on-line banking but that is not to say we have the same T&C's on our mortgages
• would C&G allow you to have any/sum OP's back if an emergency arose as this might help you think about how much to keep spare for emergency savings (I can't have any back but they would allow me to stop making normal payments until the OP's are eaten up if you see what I mean
• does the fact you live in Spain have any impact e.g. exchange rate etc
• what 'does it' for you pyscologically e.g. would you prefer to see the mortgage balance go down rather than savings go up and would that still be the case if you knew you could make more on your money via a savings account
• if you were to go down the savings route how tempted might you be to dip into it?
• If you have 17 years to go I'm guessing you haven't had the mortgage for that long (in the scheme of things!) so any inroads you make into it now have more of an impact into the capital as opposed to just covering the interest
• have you worked out the daily interest you are paying, this is a great motivator!
• have you got a LLoyds bank account with on-line banking as if so you can now also see your mortgage on-line which is also pretty sobering and focusses the mind to get rid of it
• do you have any other debt as usual best advice would be to pay those down first

Good luck with your plans
Regards
ATT